This volume presents a summary, with commentary, of the signif-
icant provisions and principles governing the various aspects of the
mineral industries. The organization of the material is by country,
with separate sections on Mining and Petroleum,each section cover-
ing topics pertinent to that particular country.

The text is based in great part on the corresponding chapters of
the Statements of the Laws in Matters Affecting Business, whichis a
series of volumes, by country, of general scope. An effort has been
made to amplify and to bring up to date the information originally
presented in the Statements, but the work does not pretend to be com-
plete, nor is there positive assurance thatall provisions are applicable
at the time of publication, because of the possibility of recent modifica-
tions that may not have come to our attention.

A similar volume will be published for the remaining ten repub-
lics of Latin America. Both volumes will be brought up to date from
time to time by means of supplements.

Paul A. Colborn
Chief, General Legal Division

August 1958

MINING AND PETROLEUM LEGISLATION IN LATIN AMERICA
Volume I

Addenda and Errata

Argentina (page 4):
Tungsten and beryllium were authorized for free trade on July 1,
1958.
The Argentine Institute for the Promotion of Trade was liquidated
on September 10, 1957.

Bolivia (page 23):
D. S. 4425 of June 12, 1956, was approved by Congress in
November 1957.

Brazil:(page 40): 2)
Add: Prospecting licenses may be renewed by the Government
for one year, even in the absence of force majeure.

Chile (page 62):
Add to 7. Mining Companies
This form of company is terminated by expiration or forfeiture
of the mining claim, by sale of the claim to a single person, or
whenever all shares come into the hands of one person.
2) Companies by contract, as provided for in article 171 of the
Mining Code. Such companies are organized in accordance with
the forms governed by other Codes (Civil or Commercial) or by
special laws. Companies may also organize by contract stipulat-
ing that they are to be governed bj the provisions of the Mining
Code the same as de facto companies.
These companies must be organized by public instrument to be
recorded in the Property Register of the appropriate Conservator
of Mines.
Colombia (page 70):
Previous metals should read precious metals.
Peru (page 123):
The caption should read, "Mining Legislation".

The primary reference to mining legislation is contained in Article 68 of the
Constitution which lists among the powers of the Congress that of enacting the Civil,
Commercial, Penal, Mining, Sanitary and Social Rights Codes, but states that these
codes shall not alter local jurisdictions and shall be enforced by the federal or pro-
vincial courts according to the jurisdiction in which the thing or person in question
is located. Thus the basic legislation on the subject is of federal concern, while
enforcement of the laws pertains to the provinces and their courts.

The new Constitution contains a provision concerning ownership of mines.
Article 40 states that minerals are the imprescriptible and inalienable property of
the Nation, with such share in the proceeds as may be agreed upon with the provin-
ces.

The Mining Code of December 8, 1886, constitutes special legislation in so
far as it modifies the provisions of the Civil Code which would otherwise apply. It
has been amended by Law No. 10273 of November 12, 1917; Law No. 10388 of July
16, 1918 and others.

Article 2518 of the Civil Code states that ownership of the soil extends to its
full depth and to the air space above in perpendicular lines. It includes all objects
found beneath the surface, such as treasure or mines, except for any modifications
provided by special laws concerning either of those objects. But another provision
of the Civil Code modifies the above principle to such an extent that the broad scope
of Article 2518 does not seem justified. Article 2342 lists as private property of
the State in general or of particular States: 2) Mines of gold, silver, copper,
precious stones and fossil substances, regardless of the ownership of the surface
by public corporate bodies or private parties.

This rule has been repealed by Article 40 of the new Constitution, cited above,
which by its wording excludes the provinces from ownership.

Note: By proclamation of April 27, 1956 the Provisional Government of Argentina
abrogated the Constitution of 1949, and reinstated the Constitution of 1853 as amend-
ed in 1860, 1866, and 1898, and to the extent not opposed to the objectives of the
Revolution as announced in the basic directives of December 7, 1955 or to the neces-
sities of organizing and conserving the Provisional Government.

ARGENTINA

Decree No. 1026/52 establishes the Mining Authority in first instance, in the
several provinces and provides various rules of procedure.

Each Mining Authority is subordinate to the National Mining Administration
(Direccion General de Minerfa). Their decisions may be appealed to the National
Mining Director, and decisions of the latter official may be appealed to the Minis-
try of Industry and Commerce.

2. Ownership in Mines

The Mining Code contains an even broader restriction on Article 2518 of the
Civil Code. Article 7, in accord with Article 2342, Civil Code, states that mines
are the property of the nation or of the provinces, according to the territory in
which they are found. This has also been modified by Article 40 of the Constitu-
tion.

Article 11 defines the nature of ownership more clearly in stating that "mines
constitute property distinct from the land in which they are found; but they are gov-
erned by the same principles common to all property, with the exception of special
provisions in this Code".

3. Classification of Mines

Articles 2 to 6 of the Mining Code comprise a section entitled "Classification
and division of mines".

Article 2 states that: "In relation to the rights which this Code recognizes
and confers, mines are divided into three categories:

1) Mines in which the surface is an accessory, which belong exclusively to the
State, and which may be exploited only through a concession granted by
competent authority.

2) Mines which, by reason of their importance, are preferentially granted to
the surface owner; and mines which, from the condition of their deposits,
are devoted to common use.

3) Mines belonging solely to the landowner, which no one may exploit without
his consent, except for reasons of public utility.

In compliance with Article 6 which states that a special law shall determine
the category, according to their nature and importance, to which newly discovered
substances shall belong, the Executive has incorporated other substances in this cat-
egory. Law No. 10388 added wolfram (tungsten) and mica, and a recent law, No.
12939, has placed vanadium in category 1.

Article 4 lists the substances included in category 2, as follows:

1) Metal-bearing sands and precious stones found in riverbeds and streams,
and in players;

2) Debris, washings and slag heaps from former exploitations, while the
mines are unoccupied; and washings and slag heaps from abandoned pro-
cessing plants, if not recovered by the owner;

Article 5 lists the minerals of category 3 as "mineral substances of a rock-
like or earthy nature, and in general all those used for purposes of construction or
ornamentation, usually obtained from quarries".

By Decree No. 2638/51, zeolites or permutites are included in the second
category of minerals.

Uranium ores. Decree No. 14. 823/52 provides that the National Atomic Ener-
gy Commission shall be the sole government authority for purchasing uranium ores
of domestic origin. Any holder of ores of this kind is required to sell them and the
Commission is required to purchase them. Decree 3920/54 provides that the Na-
tional Atomic Energy Commission shall be the sole government agency to purchase
uranium or its compounds of domestic origin. All holders are required to sell
their ore to the Commission, provided it can be processed in the plants belonging to
the Commission.

Fluid Hydrocarbons. Decree 9958/52 declares fluid hydrocarbons as a Nation-
al Government reserve for purposes of exploration and exploitation. Applications
submitted by private persons to the mining authorities will not be acted upon.

ARGENTINA

Tungsten, beryllium and mica. In accordance with the provisions of Decree
No. 16, 571/53 domestic and foreign trade in tungsten, beryllium and mica shallbe
carried out through the Argentine Institute for the Promotion of Trade. Producers
and cooperatives are required to sell their tungsten and beryllium to that Institute.
Domestic trade in mica may be engaged in either by the Institute or the mining co-
operatives.

Law No. 14, 238 added uranium and thorium to the list of substances included
in category one of article 3 of the Mining Code.

Resolution 125/55 provides that any new deposit of sulphur must be operated
for a period of two years before its production quota is determined. Producers
must notify the National Mining Administration each month of the production from
their deposit, operational methods, and any other data deemed of interest. Reso-
lution 126/55 contains similar provisions concerning beryllium.

Decree No. 2842/55 provides that the National Atomic Energy Commission
shall continue as the sole governmental agency for acquiring domestically produced
uranium or its compounds. The price is fixed for five years, based on the per-
centage of U308 that the products contain. In addition, the Commission may make
agreements for the payment for useful metals that accompany the uranium. When-
ever the Commission shall acquire ownership of ore valued at 500,000 pesos from
one or more isolated mines or from integral parts of mining groups, it shall sus-
pend further purchases of ore from such mines or from the owners thereof until the
mines will have attained sufficient operational capacity to permit a determinationof
the reserves in the deposits, as verified by the Commission. The Commission is
then authorized to sign operating agreements with the owners and the latter must
furnish all information that may be required.

5. Denouncement of Mines

Minerals listed in category 1 are subject to a special system of concessions
granted by the government, but the Mining Code contains certain provisions for the
denouncement of mines in category 2. Article 68 of the Code provides that the sub-
stances listed in items 1 and 2 of Article 4 are open to common use. When those
listed in items 3 to 6 are found in privately owned land, they belong by priority to
the owner, but the authorities may grant a concession to the first applicant, should
the owner fail to exploit them within a period of 100 days or declare within 20 days
his intention to exploit them.

Article 72 provides that any person may file a claim for the exclusive use of
substances open to common use. Article 73 lists what lands may be denounced: 1)
Lands, washings and slag heaps of abandoned mines, if they have not been occupied
or denounced within three months after being declared abandoned; 2) Lands, wash-
ings, and slag heaps of unworked (despobladas) mines, defined as any mine left
uninhabited by workers or a caretaker twice in one month; 3) Slag heaps of process-
ing plants abandoned by their owners and not protected by walls or fences.

MINING

Article 147 provides that in case of abandonment, even a concession may be
denounced. It is regarded as abandoned if the owners show by any direct and spon-
taneous act that they do not intend to continue operations.

6. Mining Concessions

Article 10 of the Mining Code states that "private ownership in mines is estab-
lished through a legal concession". And in Title VI, dealing with "Acquisition of
Mines", Article 110 states that mines are acquiredthrough a legal concession grant-
ed by a competent authority in accordance with the provisions of the Code. Conces-
sions are divided into three categories: a) Concessions on discoveries; b) Conces-
sions on new mines in known deposits; and c) Concessions on expired claims.

Formalities. Article 111 of the Code defines a discovery as the finding of a
deposit (criadero) not previously registered; if the discovery is made in land in
which no other deposit has been registered within a radius of five kilometers it is
a discovery of a new mineral, otherwise it is a discovery of a new deposit.

The formalities which must be undertaken by a discoverer to obtain recogni-
tion of a new mine are outlined in Article 113. This required the presentation of an
affidavit, in duplicate, describing the discovery and accompanied by a sample of
the new mineral. The affidavit must contain the name, civil status and address of
the discoverer, the name and address of any partners, and the name given to the
mine. It must also indicate as precisely as possible the location of the new mine
and the place where the mineral was extracted, as well as the person to whom the
land belongs.

When the discovery of a new deposit is concerned (as defined above), in ad-
dition to the preceding information the kind of mineral and the names of owners of
adjoining mines must also be given.

If the authorities find that any information or legal requirement has beenomit-
ted, Article 115 provides for a reasonable period in which corrections and additions
may be made. The applicant may also make them at any other time, but without
prejudice to third parties.

Article 116 requires that the Escribano de Minas (anotaryfor mining matters)
shall note on both copies of the affidavit the day and hour at which it was submitted,
even if not so requested by the applicant. He shall also note thereon whether there
have been other applications or registrations covering the same location, and if so,
the new applicant signs an acknowledgment of his notification thereof. One copy of
the application is returned to the applicant, the other being retained as the basis for
a request for a concession.

The Escribano then submits the application to the proper authority, who shall
order its registration and publication. Registration consists of copying the affidavit
as presented, with all notations, into the notarial records, and publication consists
of insertion of the full text in a local newspaper selected by the authorities, three
times within fifteen days. It must also be published by affixing the notice on the bul-
letin board of the notarial office. The fact of publication is noted in the petition for 5
a concession and copies of the newspapers are attached.

ARGENTINA

Subsequent articles of the Code contain further regulations on the subject. For
example, one article provides that no one may register a mine for another party
without special authorization issued before a competent authority, before two wit-
nesses, or by letter; this formality is not required of ascendent or descendent re-
latives, partners in an enterprise, or subordinate employees, butthe owner or dis-
coverer must in all cases appear within ten days to ratify, correct, or reject the
registration made in his behalf, or after such period it shall be regarded as ap-
proved.

Rights and Obligations. A discoverer is entitled to select within a deposit
any three claims (pertenencias), which may be contiguous or separated by spaces
equal to one or more claims. According to the Mining Code, a claim or pertenen-
cia is a rectangle 300 meters in length by 200 meters in width, which may be ex-
tended to 300 meters square according to the inclination of the deposit.

Within 100 days, counting from the day following registration, the discoverer
must have undertaken operations sufficient to indicate the location of the deposit, its
direction, inclination and thickness and to prove the existence and kind of mineral
discovered. If it can be shown that some obstacle prevents completion of suchwork
within the allotted time, the period may be extended for an additional 100 days.

In obtaining concessions for new mines in known deposits or in expired claims
the same procedure is to be followed as in the case of discoveries, and concession
holders are subject to the same obligations.

Taxes and Payments. With respect to payments, the Mining Code was amend-
ed by Law No. 10273 of November 12, 1917, which provides that mining concessions
are granted to private parties upon payment of an annual tax or canon on eachclaim,
which shall be fixed periodically by federal law, the concession being obtained either
from the national government or from a province according to the jurisdiction in
which a mine is located.

The law further provides that during the first five years a mining concession
shall pay no taxes other than that cited above.

For substances in category 1 as listed in Article 3 and minerals obtainedfrom
rivers and players as listed in Article 4, item 1, the annual tax or canon is fixed at
100 pesos per unit or claim (pertenencia). For those in category 2, listed in Article
4, with the exception of items 1 and 2, the annual tax is 50 pesos per claim. In the
case of provisional concessions of exploration and prospecting for substances in
category 1, the tax is two pesos per unit of measurement as fixed in Article 27
(the unit is 500 hectares).

The tax or canon is to be paid semi-annually in advance, due as of June 30
and December 31 each year, any fraction of a period being counted as an entire
six months. A mining concession will be terminated if the tax is not paid within
two months after it becomes due.

The law above cited requires other payments by a concession holder. Within
a period of four years certain minimum amounts must be invested in plant, machin-
ery, and other works directly connected with operations or processing. The exact

MINING

amount is determined by the authorities on the following basis: for substances in
category 1, between 10,000 and 40,000 pesos; for category 2, between 3,000 and
10,000 pesos. Non-compliance with this obligation will result in termination of the
concession with no right to compensation for works already undertaken.

Within the Mining Code or in legislation on the subject there is no provision
for any privileges or exemptions.

Termination. Ownership in mining property may be declared expired if it is
abandoned by the owner or concession holder or if payment of the required tax is
not made.

Article 7 of Law 10273 amended Article 274 of the Mining Code and provides
that whenever a mining concession expires it reverts to ownership by the State,
which may then dispose of it at public auction, but the mine may be retained by the
owner upon payment of double the amount of tax due plus costs incurred.

Transfers. A transfer of mining property is governed by ordinary legislation,
but subject to approval by competent authority.

7. Mining Companies

The Mining Code provides that a mining company is formed whenever two or
more persons combine to work one or more mines, in accordance with legal provi-
sions on the subject.

A company may be formed in the following ways:

a) By the fact of registration of a mine.

b) By acquiring a share in a registered mine.

c) By executing a special company contract.

The system governing mining companies is similar to that for other commer-
cial companies, differing only in certain details:

If there is a tie in voting in a mining company, Article 321 of the Mining Code
provides that the issue shall be decided by the authorities in favor of the position
which most closely conforms to the law.

No partner may transfer his interest in the company to a person who is not a
member, without the express consent of the other partners.

When a company consists of two or three persons, it is granted two claims or
pertenencias more than would otherwise be granted, and if a company consists of
four or more persons, it is entitled to four claims, in accordance with Article 338.

Article 339 provides that partners are liable for the obligations of the com-
pany only in proportion to the share they have in the mine, unless it has been
stipulated otherwise.

ARGENTINA

Dissolution of a company occurs in the following circumstances:

a) If all shares in the mine become vested in a single person.

b) By abandonment or non-operation (despueble).

c) Whenever, if a company was formed under special stipulations, any act
causes dissolution as so specified in such stipulations.

PETROLEUM LEGISLATION

Basic principles. When the Mining Code was enacted no petroleum was known
to exist in Argentina, and moreover it had not then assumed the tremendous impor-
tance that it has today as an indispensable element in the progress of a nation.

It was thus necessary to completely change the pertinent provisions of the
Mining Code as was done by Law No. 12161, enacted March 26, 1935, which regu-
lates matters governing petroleum and other fluid hydrocarbons.

The law establishes initially that all petroleum deposits are the private prop-
erty of the Nation or a Province, according to the locality in which they are found,
and these entities may exploit the deposit directly or through a "mixed" company,
or may grant them as a concession.

The following persons may not acquire any rights which may be conferred in
petroleum deposits:

1) The mining authorities and other officials and employees in that branch of
the government, regardless of the nature of their functions, and this shall
include their wives and children;

2) Directors and employees of government enterprises, and their wives and
children;

3) Foreign States, and companies which are not organized in Argentina or
whose functioning as a juridical person has not been recognized by Argen-
tine authorities;

4) Foreigners who have no real domicile in Argentina.

PETROLEUM

These restrictions (as relating to officials and employees) are formal but
temporary, since the individuals referred to may acquire such rights five years aft-
er they have terminated their functions.

Article 390 provides that in the event a prospector discovers definite indica-
tions of the existence of a deposit of fluid hydrocarbons as a result of his explora-
tions, this fact must be reported to a competent authority within thirty days. Afor-
mal declaration of the discovery must be made before the same authority within
ninety days. Failure to comply with either requirement is subject to a fine of ten
times the value of the exploration tax or canon covering the period of delinquency.

Each exploitation claim (pertenencia de explotacion) shall measure 500 hec-
tares, and every discoverer is entitled to two claims for each exploration permit.

Exploration permits shall be valid for three years, commencing six months
after the permit is granted.

During the first eighteen months of the exploration period one well-drilling
outfit, adequate for the type of work and the region, must be installed and in opera-
tion or the concession will otherwise be forfeited, except for reasons of force ma-
jeure or casu fortuito.

The minimum capital that must be invested by a concession holder, under the
same conditions and requirements as in Article 6 of Law 10273, already cited, is
50,000 pesos for each claim. In computing the value of the investment anyconstruc-
tion works may be included if they form a part of the operations.

Obligations of the concession holder. Article 394 imposes the following obli-
gations on concession holders:

1) To submit the following to the Ministry of Industry and Commerce and to
the local mining authorities:

a) Test samples of the geological structure of exploratory drillings;

b) Notification, within thirty days after discovery, of any oil-bearing
strata penetrated by drilling operations, their thickness, probable
yield, and quality of the mineral;

c) During the first quarter of each year, a provisional program of the
work to be undertaken during the year and a general report on the
work of the preceding year;

d) A chart showing the monthly production of each well.

2) To assist the authorities in any investigation deemed necessary to super-
vise strict compliance with requirements.

ARGENTINA

3) To insure employees and workers against all risks deriving from mining
work.

Non-compliance with any of the above obligations may incur a fine of from
1,000 to 10,000 pesos.

Taxes and royalties. The canon on petroleum deposits is one peso per hec-
tare, payable in the same manner as prescribed in Law 10273. On a concession in
operation it is 10 pesos per hectare.

On all petroleum operations the Federal Government or the Provinces shall
receive a royalty of 12 percent of the gross production. No other national, provin-
cial or municipal tax may be imposed on the exploitation of fluid hydrocarbons.

"Mixed" companies. Article 407 of the Mining Code provides that the organ-
ization of a "mixed" company or joint participation by the State and private parties,
as authorized in Article 347, shall be subject to the following conditions:

a) The State and the private parties shall each contribute to the capital in such
proportions as may be agreed upon.

b) These companies shall be governed by the provisions of the Commercial
Code concerning corporations, with these two modifications:

1. The president, and at least one third of the directors shall be repre-
sentatives of the State. They must be Argentine citizens and appointed
by the Executive with the approval of the Senate or Chamber. The re-
maining directors and the syndic shall be chosen by the shareholders.

2. The president, or in his absence any director appointed by the State,
shall have the authority to veto any decisions of the shareholders' or
directors' meetings that arecontrary to law or the company's estatutos,
or which might compromise the interests of the State. In such cases,
any dispute may be taken before the Executive, whose decision shall be
final.

Article 408 provides that the Executive, by regulatory decree, may fix a mini-
mum percentage of Argentine workers and employees that must be hired by aconces-
sion holder.
C

BOLIVIA

MINING LEGISLATION

1. General Principles

Bolivian mining legislation, with precedents surviving from the Spanish era,
rests on the fundamental basis of the primary ownership or absolute domain of the
State over mines and mineral substances. This is asserted in article 108 of the
Constitution and confirmed in articles 1 and 3 of the Mining Code, but with the ad-
ditional provisions that the State may grant mines and minerals gratuitously to the
surface owner or as concessions to individuals or entities on payment of a tax (ca-
non). Lastly, D. L. 3464 of August 2, 1953, article 1, states that "the soil, sub-
soil and waters within the territory of the Republic belong by primary right (dere-
cho originario) to the Bolivian Nation".

Under these principles, the State had no further powers than to turnover such
properties to private enterprise, but the present Government, by D. S. 3196 of
October 2, 1952, established an autonomous agency with juridical personality,
known as the Corporacion Minera de Bolivia, through which the State has assumed
charge of the exploration, exploitation, and processing of specified mineral deposits,
and the marketing and exportation of their products.

Article 7 of the Mining Code states that the exploration, concession, and ex-
ploitation of mines and other consequent activities are bytheir nature matters of pub-
lic use (utilidad p6blica). Based on this juridical principle, articles 99 et seq. pro-
vide for compulsory easements for mines in operation; article 114 gives mine own-
ers the right to use waters flowing through their claims; article 84 et seq. provide
for expropriation when necessary for operations; article 125 bars attachment of
mines, except when mortgaged by the Banco Minero, in accordance with D. L. of
August 16, 1939; articles 75 and 129 categorically prohibit the suspension of mine
work, under penalty of liability for damages on the part of anyone who ordered the
suspension; and D. R. of January 28, 1928 and the Law of March 21, 1928, which
created a special representative in the Public Ministry to represent mining matters
before the Superintendency of Mines.

On this same basis, D.S. 124 of June 7, 1944; D. S. 278 of March 27, 1945;
and D. S. 332 of May 21, 1945 provide for State intervention in mines in litigation
and in the closed tin mines, so as to find means for keeping them in operation. Like-
wise D. S. 1929 of February 16, 1950 provided for a government investigation of
the reasons for suspended operations.

Following the creation of the Bolivian Mining Corporation (Corporacion Mine-
ra de Bolivia) by D. S. 3196, and based on the principle of "public use" in Bolivian
Mining, D. S. 3223 of October 31, 1952 provided for the nationalization of the mines

BOLIVIA

and properties of the enterprises forming the Patiflo, Hochschild, and Aramayo
Groups and entrusted their administration and operation to the Bolivian Mining Cor-
poration.

D. S. 3869 of November 8, 1954 provided that the nationalized mines and ex-
propriated properties should constitute the initial capital of the Corporation. D. S.
4113 of July 7, 1955 included within the nationalization decree all mine wastes, slag
heaps, and tailings of mines and establishments belonging to the three Groups, as
well as all pending concessions applied for on claims and excess lands (demasias),
with a consequent prohibition against the allotment of any of the foregoing to private
persons or entities.

D. S. 4458 of July 18, 1956 reorganized the Bolivian Mining Corporation on the
basis that it is an autonomous public institution, with independence to develop its
activities and its own juridical personality. Its relations with the Executive Power
are conducted through the Ministry of Mines and Petroleum.

D. S. 4538 of December 15, 1956, abolished the low-cost provision stores
(pulperfa barata) in nationalized mining enterprises. In compensation, mine work-
ers are to receive an increase of Bs. 3,950 per day in wages for the abolishment of
these stores and Bs. 1,300 per day for exchange differences.

The bonus for increased production may be established only when it is shown
that its effect will increase income, and it may in no case be retroactive.

The Mining Corporation must pay the State a royalty on gross production equal
to that paid by private mining enterprises.

This decree, in its provisions of chapter V governing the Mining Bank, also
contains provisions for regulating the exploitation and sale of minerals.

2. Legislation in Force

The basic law governing mining activities is the Mining Code, enacted as the
Law of February 11, 1925. This law consists of 311 articles, divided into five sec-
tions (tftulos), as follows: ownership and acquisition of mining property; conserva-
tion and exploitation of mines; protection and loss of mining rights; the National
Mining Engineers Corps; mining tariffs. A final section contains specialandtran-
sitory provisions.

Subsequent to the enactment of this Code a number of other laws have been
passed, which modify and supplement the legal system governing mining matters.
Among these are the following:

1) Law of January 14, 1928, which established the Superintendency of Mines,
replacing the Ministry of Industry as the authority in mining disputes and litigation,
and regulated legal procedure.

2) Law of March 21, 1928, which created the Fiscalia de Minas, expressly
entrusted with legal mining questions in relation to the Public Ministry.

MINING

3) D. S. of February 2, 1928, authorizing the establishment of a Mine Police
(Policia Minera Obrera) in each zone or district, to collaborate with the labor au-
thorities in the maintenance of order, intervention in labor contracts and work ac-
cident cases. Recently, D.S. 3586 of December 15, 1953, established the Workers'
Control (Control Obrero) with a still wider scope of duties.

4) D. S. 3327 of March 5, 1953, which created the National Chamber of Mining.

5) D. S. 3328 of March 5, 1953, altering the organizationof the directorate of
the Banco Minero.

6) D. S. 3037 of April 12, 1952,which reestablished the MinistryofMines and
Petroleum and D. S. 3448 of July 3, 1953, regulating its powers and duties and
which abolished the Superintendency of Mines.

7) D. S. 3072 of June 2, 1952, under which the State assumed the monopoly of
the exportation of minerals and sales in foreign countries. This law is supplement-
ed by D. S. 3638 of February 11, 1954.

There are also innumerable provisions relating to licenses and taxes concern-
ing mines; fiscal reserves in certain zones; exchange control as relating to mining,
etc.

It should be noted that jurisdiction in mining matters is principally adminis-
trative, formerly through the Superintendency of Mines and now the Ministry of
Mines and Petroleum and the subordinate department superintendents, or even the
Subprefects in certain cases, who are in charge of matters relating to adjudications
and expropriations, easements, and many other questions of procedure, validity of
claims, etc. The judicial authorities, as stated in the Mining Code itself, intervene
only at a later stage in the decision of questions relating to mining.

With respect to property rights, the Mining Code states that mining property
is governed by the principles applicable to all property, but there are certain prin-
ciples peculiar to mining that are somewhat different. A mining claim (pertenencia)
may not be physically divided and juridically only by the issuance of shares; trans-
fers may be made inter vivos or by causa mortis, like other property, but may not
be rescinded by claim of injury; a transfer is not perfected unless by public instru-
ment inscribed in the Mining Register (Registro de las Notarias de Minas); there
are various differences in mortgage procedure; mines are acquired by prescription
like other property under civil law, but the time of possession required is different.

There are differences in contractual rights. For example,mine owners may
make contracts with surface owners or neighboring mine owners, but if agreement
is not reached expropriation may be requested. In addition, most contracts relat-
ing to mining matters must berecordedin the Mining Register.

3. Ownership of Surface and Subsoil

A mine constitutes property distinct from the land in which it is situated, even
if both belong to the same owner (Mining Code, article 4). The surface and the sub-
soil are thus two different things: the former includes the surface proper andany

BOLIVIA

depth the owner has worked for any purpose other than mining; the subsoil begins
where the surface ends and is indefinite in depth.

Whether the surface is held by private ownership or is in the public domain,
the owner cannot lose it except by expropriation. The subsoil, as noted, is a part
of the domain of the State, which may allot it to individuals according to provisions
of law.

Once a mine passes into private ownership, it may be transferred by contract
inter vivos or by causa mortis, like any other property.

4. Categories of Mines and Minerals

Mines. Under the law it is actually not mines that are classified but mining
enterprises, divided into three categories: Large, Medium, and Small. The first
group includes the Patifio, Hochschild, and Aramayo enterprises, now replaced by
the Corporaci6n Minera de Bolivia. D. S. 3996 of March 24, 1955, amending
existing provisions on the subject (D. S. of December 22, 1941 and D. S. of Febru-
ary 25, 1942) classified as medium mines, on the basis of their average minimum
monthly exportation, calculated over six-month periods, mines producing the fol-
lowing quantities of minerals: tin, 5,500 kilograms; wolfram(tungsten), 7,000
kilograms; antimony, 20, 000 kilograms; lead, 15, 000 kilograms. Unchanged from
the previous decrees cited are the minimum figures for copper, 20, 000 kilograms;
copper from complex ores, 15,000 kilograms; and silver, 1,000 kilograms.

Mines producing more than one mineral and which meet the minimum require-
ment for any one mineral are tp be considered as medium for all minerals produced,
even if below the minimum. Mines which do not meet the normal monthly produc-
tion minimum indicated for any mineral listed are classed as small mines, even if
they meet other requirements of a medium mine.

Minerals. Minerals are divided into four categories, as follows:

Category 1: Deposits of all metallic substances, such as silver, gold, tin,
platinum and similar metals; metal-bearing sands found on the surface or in beds
of rivers and streams or players; and precious stones.

Category 2: Deposits, strata, or other formations of non-metallic substan-
ces, such as borax, ammoniac, magnesia, iodine, alumina, sulphur, nitrates, coal
of various forms, peat, alum, borates, steatites and phosphates, kaolin, and other
substances used in industry.

Article 13 of the Mining Code provides that the substances enumerated incat-
egories 1 and 2 may be allotted to anyone who applies for them in accordance with
provisions of the Code. In the case of coal (carbon de piedra), the State is entitled
to one fifth of every discovery. D. S. of September 28, 1942 declares coal and
other carboniferous deposits as a fiscal reserve, the exploitation ofwhichis entrust-
ed exclusively to the State.

Petroleum and hydrocarbons are governed by a special law.

The substances listed in the fourth category belong to the surface owner or
are for common use, according to the usage and custom of the locality, subject to
certain exceptions.

5. Concessions of Exploration

Exploration or prospecting of mines is called cateo in the Mining Code. Many
of the rules relating to exploration, especially with respect to obtaining permits,
are no longer observed. The law is limited to outlining the procedure to be followed
in obtaining a license, and guarantees the surface owner his compensation for dam-
ages but offers no protection to a prospector against others as the permitgrants no
rights of priority.

In accordance with articles 15 et seq. of the Mining Code, any individual or
company may make excavations not exceeding 10 meters in length and depth, to
search for minerals, in lands that are not fenced or cultivated, regardless of the
owner, but with the obligation of paying compensation for damages.

Excavation permits may not cover buildings or gardens in the public or pri-
vate domain, or in towns or cemeteries. They may not be made within 50 meters
of a road, public canal or railway, without permission of the local authorities, or
within the same distance of isolated buildings without permission of the owner. They
may not be made within a radius of 1,000 meters around a fortification or barracks,
unless authorized by the Ministry of Defense.

When permission is refused by private owners, the application may be taken
up at a hearing with the local provincial authorities.

If a license is granted it must be used within thirty days, which period maybe
extended once only for a like interval.

6. Concessions of Exploitation

General principles. Mines containing substances in the first two categories
are allotted as concessions upon payment of a yearly license fee. Substances in the
fourth category belong to the surface owner or are for common use, as indicated.
However, in the case of serpentine, marble, alabaster, berenguela, porphyry,
jasper, and salt deposits, these substances may be allotted to third parties if the
surface owner, after being notified of the application, does himself undertake to
work them within a period of twenty days, plus allowance for distance. The work
must actually be started within six months.

BOLIVIA

Mine owners may operate their mines freely without being subject to compul-
sory technical requirements of any kind, being solely subject to strict observance
of the legally established regulations of the mine police authorities.

Mining property, accessory installations, and production are unattachable and
are subject only to administrative authority and the regular courts.

Mining operations may not be interfered with; their suspension by reason of
litigation is absolutely prohibited and may be ordered by the authorities only on
grounds of public safety or the protection of the property or health and lives of the
workers.

Procedure; rights and obligations. Mines may be obtained by direct applica-
tion or denouncement of an unworked mine. The application is to be submitted to a
Departmental Superintendent of Mines who will grant a provisional allotment of the
number of claims (pertenencias) requested, upon payment of the license fee for
two six-month periods and for publication in the Boletin de Minas, after approval
of plans by the Technical Office and due notification of neighboring mine owners.

A claim (pertenencia) is a solid with a square base of 100 meters on each
side, measured horizontally in the manner indicated by the applicant, and indefinite
in depth for certain classes of minerals,but for others limited to the depth where the
mineral is exhausted (Mining Code, article 42).

The allotment gives the applicant full right to exploit the mine except when the
proceedings are terminated or legal opposition is presented (D. S. 2761 of October
2, 1952). A survey is next made and the boundaries are marked, possession is
taken, and if all are approved, definitive title of ownership is issued. This mustbe
registered in the Notarfa de Minas, as must all contracts relating to mines.

Concessions are perpetual, but to maintain his rights in effect the holder must
pay the yearly fee fixed by law. If he fails to make payment for two six-month
periods, the mine will be declared forfeited (en desahucio), and becomes free land
for allotment to another interested party. This can be the previous holder who has
priority in a new concession.

The allotment may likewise be terminated (en caducidad) for the following
reasons: a) if the proceedings of demarcation and possession are not duly approved;
b) if these proceedings were not completed within the required period; c) if the ap-
plicant does not contest opposition within the time required; d) if the mine owner re-
nounces the concession.

D. S. 2761, cited above, provides that all applications for mining property on
which no action is taken within six months are considered as terminated ipso facto
without the necessity of formal notification.

D. S. 3561 of November 24, 1953 requires that concessionaires of tungsten
deposits must begin operations within a period of 90 days after the concession is
allotted and must show production within 180 days or the concession will be termi-
nated and revert to the domain of the State.

MINING

The dumps, slag heaps, and washings of mines and abandoned mines located
in free lands may be allotted as regular mining concessions with the same rights
and obligations, in accordance with article 14 of the Mining Code as amended by
D. S. 2761.

Abandoned mine openings may be obtained in the same manner (D. S. of
January 18, 1940) with the exception of those in the Cerro Rico of Potos', which by
the Law of September 29, 1945 are allotted to the Banco Minero.

Concessionaires are-owners of all substances found in their claims, to any
depth, excepting petroleum and hydrocarbons and metallic substances if the conces-
sion did not specify these substances. The holder of a surface concession is owner
of any substances found underground within the area of his cla:.m if he files a new
application for this purpose.

A concessionaire is the owner of all water found during operations, as long as
he is owner of the mine. If he desires to use water in the public domain this may
be allotted in the usual manner.

Ownership of mines may be transferred by sale, inheritance, gift, or any
other form of transfer of title, applicable to real property. As previously mentioned
this must be done by public instrument before a Mining Notary.

Minerals must be purchased at a mine or from a known mine owner, or in the
presence of an authority or of witnesses not employees of the purchaser, or with a
certificate of an official at the place where the product was obtained, showing that
the seller actually operates the mine or acquired the product by lawful title. If the
purchase is made under these conditions the minerals cannot be reclaimed; if these
conditions are not present there is presumption of theft.

7. Taxation

The tax charges on mining may be classified into three groups: a) fees of
fixed charges (tasas); b) internal taxes; and c) customs duties on exports, now
replaced by royalties. The principal taxes in these categories are listed below.

Fees.

A) Publications in the Boletfn de Minas. In granting a concession, the appli-
cation and the concession must both be published in three consecutive issues of the
Boletfn de Minas (Mining Code, articles 29, 32, 34, 36 and 37). Notice of the sur-
vey and boundary marking must also be published once, if adjoining landowners were
not notified personally (article 46). An extract of any mining contract must also be
published (article 181). Notice of forfeiture due to failure to pay the license fee for
two six-month periods must be published three times if the mine owner is absentor
evades personal notification (article 248).

D. S. 4107 of June 30, 1955, amending the fees established by D. S. 1733 of
September 7, 1949 governing the publication of mining documents, provides for pub-
lication in the Boletin de Minas of each Department upon payment of the following
fees:

BOLIVIA

For the three publications required by law
for each application and concession Bs. 15,000

For every extract of a mining contract 4, 000

Plus the price of each copy of a Boletin .. 300

The decree further provides that in Department capitals where no Bolet'n de
Minas is published, the Superintendent shall designate a newspaper of wide circula-
tion for such publications, and the interested party must deal directly with the pub-
lisher as to the amount of payment required.

Failure to pay the required fees for publication will cause suspension of
proceedings and failure to publish a contract is subject to a fine of from 10,000 to
20,000 bolivianos.

B) Mining license (patente minera). This charge was established by the Law
of October 13, 1880. The charges now in effect are based on the D. L. of July 27,
1936 as amended by D. S. of November 7, 1936, as follows:

Claims containing metalliferous deposits, gold-bearing or tin-bearing sands,
or any other metallic products found in rivers, players, lodes, and other formations
pay an annual license (patente) beginning with the second half of the first year, as
follows:

Bs. 8 per hectare during the first year, computed according to the provisions
of article 242 of the Mining Code, regardless of the area requested;

Bs. 10 per hectare in subsequent years, regardless of the number of claims
allotted.

Mine openings (bocaminas) in the Cerro de Potosi and Cerro de Machacamar-
ca pay an annual license fee of Bs. 25.

Article 3 of D. S. 2761 of October 2, 1951 also imposes the following license
charges: a) Bs. 50 per year on each claim included in the first category; b) Bs. 30
per year on each claim included in the second category; c) Bs. 250 per every boca-
mina.

There are also numerous legal provisions imposing surcharges and additional
taxes on the license fees charged in specified mining districts of the country.

C) Land assessment tax (contribucion catastral). This tax, which under the
original law of December 7, 1906 was Bs. 1 per hectare, was raised by D. S. of
January 20, 1943 to Bs. 15 per hectare payable once only in the mining districts to
be assessed.

MINING

Internal Taxes

A) Tax on allotments. The Law of December 30, 1948 established a tax of
Bs. 5 per hectare or claim located in the Department of Chuquisaca, La Paz, Co-
chabamba, Santa Cruz and Tarija.

A Law of November 20, 1947 and D. S. 3188 of September 20, 1952 imposed
an additional tax of Bs. 2 annually per hectare or claim in the Department of Potosi
and Bs. 20 per claim in the Department of Santa Cruz.

B) Additional Tax. Various laws impose additional taxes per hectare on
mining property located in the Districts of Chuquisaca, La Paz, Cochabamba, and
Oruro, which in some cases are actually license fees.

C) Transformation of titles. By the Law of December 8, 1933 mining and
petroleum properties which are transformed from individual enterprises into part-
nerships or corporations, and partnerships which change to corporations, pay atax
of 1 1/2 percent of the total value of the property of the new enterprise.

D) Transfer tax. The same law just cited imposes a tax of 2 percent on all
transfers of ownership.

E) Tax on mining profits. This tax, originally established by the Law of
December 1, 1911, is imposed on net profits shown by the statement of balance as
of December 31 of each year. The multitude of provisions on the subject were final-
ly simplified by D. S. 3299 of January 16, 1953 which has replaced all such taxes
by a single tax of 25 percent.

F) Tax on mining dividends. This tax is distinct from the tax on profits and
is imposed on the profits distributed to individuals as dividends. The dividend tax
was established by the Law of January 5, 1914 and this and subsequentlaws exempted
dividends from mining, but D. S. of July 20, 1936, which became the Law of July4,
1938, repealed these exemptions and imposed a tax of 10 percent on dividends paid
by mining companies. The tax is to be paid ir he same currency as the dividend.

This was supplemented by article 2 of the Law of November 30, 1945 which
imposed an additional tax of 2 percent on shares issued to bearer.

Export Taxes

D. S. 4540 of December 15, 1956 (also a part of the Currency Stabilization
Plan), based on the fact that this Plan "has initiated a new economic policy which
requires a parallel new fiscal and tax policy", has replaced all taxes on mining ex-
ports and profits by payments of royalties to the State, in freely convertible ex-
change, to be calculated on the fineness of the ore and its gross value as declared
in export permits according to official quotations fixed every two weeks by the Min-
istry of Finance and in effect on the date of exportation, at rates indicated for each
mineral.

19

BOLIVIA

8. Liquidation and Transfer of Concessions

The liquidation of a mining enterprise, as a general rule, follows the same
procedure as provided in commercial law for the liquidation of commercial com-
panies.

D. S. 278 of March 27, 1945 authorizes the State to establish fiscal control
over mines that shut down their exploitation operations and processing of tin ores,
the Ministry of Mines being charged with determining the occasion for such inter-
vention to be accomplished by a R. S.

Ownership of mines may be transferred inter vivos or causa mortis in the
same way as any real property, even if the permanent title of ownership has not
been issued. Such transfers must always be recorded in the special Notarial Reg-
ister of Mines.

9. Mining Companies

In accordance with articles 130 et seq. of the Mining Code, mining companies
are subject to civil law but must be organized by public instrument following provi-
sions of commercial law. The instrument must be recorded in the mining register
and published in the Boletin de Minas before the company has legal existence. Pri-
vate documents may be used only in the case of companies of the "joint venture"
type and in contracts granting certain portions of a mine in lieu of profits.

Companies organized in a foreign country must first obtain recognition of their
juridical personality, establish a domicile in Bolivia and appoint a legal represen-
tative. By the Law of February 23, 1927, a corporation must also name a responsible
board of directors.

For these purposes the following documents must always be presented:

1) Instrument of organization of the company;
2) A certificate showing incorporation in accordance with the laws of the coun-
try of origin, and authorization to commence operations;
3) The statutes (by-laws), in the case of a corporation;
4) A certificate attesting to the deposit of at least 10 percent of the subscribed
capital.

A mining company is dissolved by the death of one of the partners, but his
heirs have the right to dispose freely of his share in the company, through judicial
procedure.

10. The Banco Minero

The Banco Minero or "Mining Bank" was established by D. L. of July 24,1936
which became a Law of December 10, 1943, as a corporation with "autonomous and
independent juridical personality" and its capital contributed by the Government, the
Central Bank, member banks, and mine owners. It has been made aState institution
20 with the State as sole shareholder by D. L. of June 7, 1939.

MINING

D.S. 3328 of March 5, 1953 changed the composition of its board of directors
so as to conform with the decree nationalizing mines and creating the National Cham-
ber of Mining.

The Banco Minero may grant loans for the following purposes: a) for the
development of recognized mines; b) for the acquisition and installation of proces-
sing plants and mine machinery; c) for the installation of power plants; d) to im-
prove, expand or complete all types of installations; e) to provide capital for grow-
ing enterprises.

The Bank receives sight and time deposits and accounts current; it may trans-
fer funds, issue letters of credit, discount bills of exchange and other credit instru-
ments, but only for mine owners and mining enterprises, and may market mining
shares without liability.

It buys and sells ores on its own account or as intermediary between producers
and smelters or foreign purchasers, including concentrates and by-products. Itmay
also receive ore shipments on consignment for sale in foreign markets, making
advances to the sellers when appropriate; it also establishes contacts with purchas-
ing firms and syndicates in foreign countries.

In accordance-withD. S. 3072 of June 2, 1952, all producers or holders ofore,
without exception, must deliver their product to the Banco Minero against payment
in the national currency at the official purchasing rate of exchange on the day of the
transaction.

The exercise of the monopoly of ore export provided in this same decree,
given to the Mining Corporation of Bolivia by D. S. 3196 of October 2, 1952, is
entrusted to the Bank by art. 6 of this latter decree, and at present the Corporation
exports only its own ores, and the Banco Minero all other production in the country.

D. S. 4538 of December 15, 1956 (in the Currency Stabilization Plan) includes
the following provisions with respect to this Bank:

BOLIVIA

The Mining Bank (Banco Minero de Bolivia) is to retain its functions as exclu-
sive purchaser of ores within the national territory, but private enterprises of the
medium category may freely export their production whenever the prices obtained
from a specific purchaser are more advantageous than the prices paid by the Bank,
in which case the latter must authorize the sale in question.

Small mine producers are to sell their production exclusively to the Mining
Bank at prices quoted for the day.

Sales contracts made by the medium mines through the Mining Bank are to be
transferred to the respective enterprises with all rights and obligations, including
the contribution to the International Tin Agreement Fund for the account of the pro-
ducers.

The Mining Bank will pay ore producers in foreign currency'on the basis of
the price paid by the purchaser less deductions for expenses of the Bank's services.
After payment of taxes and royalties due the State, producers may freely dispose of
the exchange derived from their exports.

Unless there are stipulations to the contrary in the contract, gold production
must be exported through the intermediary of the Mining Bank, which will pay pro-
ducers a fair price in foreign exchange or in domestic currency at the current ex-
change rate, at the option of the producers. Individual producers of gold, such as
families or cooperatives, that produce amounts less than a minimum specified by
the Ministry of Finance, will not pay any royalty to the State.

The Mining Bank may not buy or sell foreign exchange except through the Cur-
rency Department of the Central Bank and at the current exchange rate. Transac-
tions in exchange between the Mining Bank, private mining producers, and the Cen-
tral Bank are to be settled on the basis of exchange rules established in the above
decree.

Deductions corresponding to the quota of exports made by the Mining Bankfor
the International Tin Agreement Fund will be reimbursed to the Bank by the State,
whereby the tin held in storage becomes the property of the State. These deductions
do not affect private producers, except as mentioned above in connection with sales
contracts.

The deposits of the Mining Bank in the Central Bank remain frozen. With-
drawals from this account may be effected only through the express authorization of
the Ministry of Finance, upon recommendation of the National Council on Currency
Stabilization.

11. Privileges and Exemptions

The provisions granting exceptions in favor of medium and small mines, as a
means of stimulation, are contained in Title III of D. S. 3995 of March 23, 1955.

MINING

Following similar provisions contained in D. S. 3690 of April 1, 1954, the new
decree authorizes the Banco Minero, after consultation with the Ministries of Fi-
nance and of Mines, to readjust to profitable levels the prices of minerals produced
by the medium and small mines. A premium has been established in favor of these
mines, for higher production, based on average production per quarter in the years
1952, 1953, and 1954. This premium will consist of a payment of 80 percent of the
net value of the excess production, payable by check in dollars from the Central Bank
to the order of the producer, and this may be freely negotiated or used to import
certain machinery and equipment. The balance of 20 percent is payable to the pro-
ducer in Bolivian currency at prices fixed by the Banco Minero.

The medium mine owners may obtain drafts in foreign currency at the official
selling rate, directly from the Central Bank, for the equivalent of 20 percent of the
gross value of each delivery, from which they can import directly their materials
and equipment, from an authorized list, exclusively for their own production needs.
The small mine owners shall continue to make their imports through the Banco Mi-
nero, which must open accounts in dollars for the equivalent of 20 percent of the
gross value of their deliveries. (The percentages mentioned above were raisedfrom
16 to 20 percent by D. S. 4234 of November 24, 1955.)

Medium miners, by agreement with the Banco Minero, are authorized to find
markets for their minerals having no fixed price quotation, and to seek in the inter-
national market prices more advantageous than those of the Banco Minero. In
either case, after offers have been duly verified, the Banco Minero may underwrite
the respective contracts.

However, a new decree, D. S. 4460 of July 21, 1956 places somewhat of a
restriction on the use of the funds from the 80 percent of excess production, by
tightening the requirements as to imports that can be made, subject to the approval
of the purchasing commission of the Banco Minero.

D. S. 4425 of June 12, 1956 accepted the proposal of South American Gold and
Platinum Co. of New York to explore and exploit deposits of gold and platinum in the
Rio Kaka and others adjacent in the Province of Larecaja in the Department of La
Paz, on the bases, terms, and conditions established in the decree. The decree
must be submitted for the approval of Congress, but those stipulations which do not
require legal sanction are to take place immediately in order that the company may
initiate its work of exploration.

PETROLEUM LEGISLATION

1. The Petroleum Code

The most significant development in the subject is the enactment of the re-
cent Petroleum Code which has replaced the Law of June 20, 1921 and the whole le-
gal system based thereon and on the Decree-law of October 24, 1936. The new de-
cree introduces a new system repealing all provisions to the contrary, including
D. S. 3724 of May 6, 1954 relating to government reserves of petroleum deposits.
The Petroleum Code was approved by D. S. 4210 of October 26, 1955 and regulated
by D. S. 4298 of January 24, 1956. The Law of October 29, 1956 declares that this
Code is and shall be enforced as a law of the Republic, with certain modifications.
A summary of its twelve chapters (embracing 168 articles) follows.

2. General provisions

Deposits of petroleum, asphalt, natural gas, and other hydrocarbons in any
state, found within the territory of Bolivia, are directly, inalienably, and impres-
criptibly a part of the domain of the Nation.

The rights to explore, exploit, refine, store, and transport hydrocarbons by
pipelines or other special means may be exercised by the Statethrough autonomous
entities or mixed companies, or may be granted to natural or juridical persons as
concessions or company contracts between the State and such persons. All matters
relating to these rights are declared to be of public interest (utilidad publica.

Concessions are granted at the discretion of the Executive Power and at the
full risk of the interested party, inasmuch as the Nation does not guarantee the
existence of any class of substances. No concession, company, or contract, con-
fers ownership of the deposits, but only a real right to explore, exploit, refine,and
transport hydrocarbons for a specified time. This right may be mortgaged. -

Concessions may be acquired by any person having civil capacity andwho has
proved his technical and financial solvency for purposes of undertaking the explora-
tion, exploitation, etc., of hydrocarbons. The concession holder shall represent
the State in the exportation of crude petroleum and its derivatives. The obligations
and rights established by the Petroleum Code are inherent in the concession andthe
subject thereof is the concession holder, his heirs, or assigns.

The Executive Power may grant concessions to the same natural or juridical
person in one or more zones, or may grant one or several concessions within the
same zone, up to the maximum areas established in the Code.

PETROLEUM

Every person who explores, exploits, refines, or transports hydrocarbons
must establish a legal domicile in Bolivia and must have in residence a representa-
tive with full powers to deal with and settle any matter relating to the activities of
his principal within the territory of Bolivia. Concession holders shall be subject to
the laws of the country, and if foreigners, it shall be taken as granted that they re-
nounce the right of diplomatic intervention in any matter relating to the concession.

Upon authorization of the Executive Power, a concession may be subject to
full or partial transfer in favor of anyone who meets the legal requirements of a
concessionaire and who fulfills the conditions imposed on concessions.

The Executive Power, personally or by delegation, shall oversee and super-
vise the work carried out by concession holders, to ensure not only the State's par-
ticipation in results but also compliance with contracted obligations.

For purposes of the provisions of the Code, distinction is made between the
surface and the subsoil, and a surface owner shall thereby not lose his rights.

Foreign natural or juridical persons may not apply for, acquire, or possess
a concession or a simple permit of surface reconnaissance within fifty kilometers
of the frontiers, but they may construct, possess and exploit railways, roads, or
pipelines crossing these prohibited zones, for the use of their interior concessions.

Foreign governments or state or corporate bodies or other entities subordinate
thereto may not obtain a concession of any kind, under any form of title, directly or
through the intermediary of any other person. Likewise they may not be admitted
as partners or members of any company.

This Code and its Regulations may be amended in accordance with the provi-
sions of the Constitution; but concessions and contracts shall be governed by stipula-
tions in force at the time the contract is made, unless there is some special agree-
ment to the contrary by the parties.

Doubts or disputes on questions of a technical nature, in the event they are
not settled amicably between the Executive Power and the concession holder, shall
be submitted to the opinion of experts appointed by the parties, and if these do not
reach an agreement they shall appoint a deciding expert whose decision is final. If
the original experts are unable to agree on such an expert, the Supreme Court shall
appoint an agency or person trained in the petroleum industry, from lists submitted
by the parties.

Under the Petroleum Code, the territory of Bolivia is divided into six zones:
Zone I, Zone II, Zone IIIa, Zone IIIb, Zone IIIc, and Zone YPFB, the boundaries of
each being clearly defined within specified parallels and meridians.

3. Surface reconnaissance

The Petroleum Administration (Direccion General de Petr'leo) may grant
reconnaissance permits to natural or judicial persons having the same legal capac-
ity as required of concessionaires. These permits grant solely the right to

BOLIVIA

inspect the terrain, without granting any priority in the granting of a concession. A
permit holder may conduct any form of topographical, geological, geophysical, and
geochemical studies for investigation and proof, and may make drillings to obtain
geological information; but he may not drill wells for the purpose of discovering or
producing petroleum or conduct surface reconnaissance work in areas already grant-
ed for exploration or exploitation, unless with the consent of the interested parties.
In all cases, a permit holder is obligated to pay for damages caused to third par-
ties. Independently of this obligation, the Petroleum Administration may require a
bond of not over $5,000, if deemed advisable.

4. Concessions

Categories. Petroleum concessions may be of four kinds, according to their
purpose:

1) Exploration and subsequent exploitation of the areas granted.

2) Direct exploitation of such areas.

3) Refining, manufacture or processing of hydrocarbons and the obtaining of
derivative products.

4) Transportation, by pipeline or other special means, of the substances ex-
tracted, refined, or processed.

Concessions referred to in Nos. 3 and 4 will be regarded as accessory to con-
cessions of exploration and subsequent exploitation or concessions for direct exploi-
tation. Similarly, concessions to which No. 4 refers will be considered as acces-
sory to No. 3. Concessions listed in Nos. 3 and 4 also may be granted independent-
ly and do not imply exclusive rights.

Concessions for exploration and subsequent exploitation may not exceed the
following limits in area:

Concessions of exploration and subsequent exploitation and concessions for
direct exploitation shall not have any breaks or gaps, but one and the same natural
or juridical person may obtain more than one concession, even in the same Zone.
However, the following limits are set on the simultaneous holdings of such conces-
sions:

No concession for exploration and subsequent exploitation may have an area
of less than 5,000 hectares, and for concessions for direct exploitation the mini-
mum is 1,000 hectares, with the exception of "leftovers" (demasfas) the area of
which may be less than the foregoing minimums.

A demasia is defined as any free space existing between two or more conces-
sions, having an area of less than 5,000 hectares or 1,000 hectares, according to
the type of concession concerned.

Allotment of concessions. Any person desiring to obtain a concession under
categories 1 and 2 above must submit to the Direcci6n General de Petroleo an ap-
plication including the following documents:

1) The application giving identification data on the applicant; the name, place,
area, boundaries, point of departure and point of reference of the desired conces-
sion; names of adjoining concession holders, if any; and a statement as to whether
the lands applied for are publicly or privately owned.

2) A sketch of the desired concession, signed by an engineer or surveyor.

3) Proof of financial capacity.

4) A memorandum describing technical capacity and experience in the petro-
leum industry.

5) Receipt for deposit in the Central Bank, in United States currency, of the
following sums to the order of the Direccion General de Petroleos:

US$0. 20 per hectare in Zone I
US$0. 10 per hectare in Zone II
US$0. 05 per hectare in Zone III

In the case of concessions for direct exploitation, the guarantee deposit must
be twice the above amounts. If an application is refused, in whole or in part, all or
the corresponding portion of the deposit will be returned to the applicant.

If the applicant is disposed to offer special benefits in behalf of the State, bet-
ter than those established in the Code, he should expressly so state in the applica-
tion, specifying the kind, terms, amounts, and other details concerning such bene-
fits.

An extract of the application is to be published in a newspaper at the seat of
Government, and fifteen days thereafter if no opposition has appeared or if no other
interested parties have applied for the same concession, after a favorable reportby
the Direcci6n General de Petr6leo, the Executive shall issue an order (resoluci6n
supreme) granting or refusing the concession.

BOLIVIA

If during the teen days, one or more other applications are submitted, the
Executive shall grant the concession to the one offering the most advantageous con-
ditions, which may be done by bids in such cases as the Executive deems advanta-
geous to the public interest. The decree should indicate such cases, giving details
of the requirements and formalities, and provide that the respective hearing should
be advertised by notice in the newspapers, indicating the areas offered, the mini-
mum bases and other conditions, including a guarantee in an amount fixed by the
Executive.

Opposition to a concession on the basis of overlapping the area of one or
more concessions already in force or in process, or for other reasons, shall be
settled by the Direcci6n General de Petroleo with recourse to annulment of its de-
cision by the Supreme Court of Justice.

If there is no opposition or if the opposition is definitively rejected, the Exec-
utive will award the concession by ordering the Petroleum Notariat (Notarfa de Pe-
troleo) to issue the respective official title to the concessionaire, and this must be
recorded in the Office of Real Rights (Oficina de Derechos Reales) in the capital of
the Department or Departments in which the concession is located.

Exploration and exploitation. A concession of exploration confers the exclu-
sive right, for a fixed period and within a specified area, to carry out any work and
operations for the purpose of discovering petroleum, including the drilling of wells
and surface reconnaissance.

The periods fixed for each zone are as follows: Zone I four years, without
extension; Zone II -four years, and a single extension of two years; Zone III- six
years, with two extensions of two years each. Extensions may be requested by a
concession holder who deposits the following amounts as license fees relating to the
first annual payment: US$0. 05 per hectare in Zone II, and US$0. 03 for the first
extension and US$0. 04 for the second extension in Zone III.

Applicants must also have made a minimum investment in their exploration
work: US$0.80 per hectare in Zone I; US$0. 50 in Zone II; and US$0. 20 in Zone III.
Holders of concessions for exploration and subsequent exploitation who desire to ap-
ply for extensions must have invested, during the extension period, amounts 30 per-
cent in excess of the preceding figures.

Initiation of exploration work may not be delayed for more than six months
from the date the concession was granted.

A concession of exploration and subsequent exploitation confers an exclusive
right to explore the area granted within the time limits indicated and the righttoex-
ploit for forty years the area or areas selected for this purpose by the concession-
aire, in accordance with plans approved by the Direcci6n General de Petr6leo. Aft-
er due examination a document evidencing this right is issued and recorded by a
Petroleum Notary.

The area selected for exploitation may in no case exceed one half the area
granted for exploration. The areas not selected shall revert to the State and may

PETROLEUM

be granted as a new concession. The selection may be made in two steps whenever
the area of the concession is more than 300,000 hectares and located in Zone II or
III.

The right to exploit includes the right to extract and utilize substances exist-
ing in deposits of petroleum, asphalt, natural gas, and other hydrocarbons, and to
undertake any work and activities to that end.

The topographical plans of a concession for direct exploitation mustbe submit-
ted within a period indicated in the order authorizing the granting of title to the con-
cession, and this period may not be longer than five years from the date of issuance
of the order. When the plans have been submitted, the fact shall be published in
the press and after a thirty-day period, with or without opposition, the Direccion
General shall.order correction of any irregularities or errors, within a period of
not more than six months, after which approval shall be given.

Both the approval order and the plans or order for their correction may be
appealed before the Supreme Court within eight days from their publication. If final-
ly approved, a certified copy thereof will be issued.

A holder of a concession may, within or outside the boundaries of the conces-
sion, construct buildings, camps, storage depots, warehouses; may set up tele-
phone lines and other means of communication; install systems of land, maritime,
river, or air transportation and pipelines; construct docks and other means for
shipment; and in general, may undertake any work necessary and lawful for the de-
velopment of his activities. For such purposes a concessionaire may make direct
agreements with surface owners, and if this is not possible, may resort to legal
means authorizing temporary occupation, expropriation, or the acquisition of ease-
ments.

A concession holder must meet the following minimum obligations: a) during
the first seven years, counting from the date of beginning exploitation, he must drill
one or more wells to a depth of at least 5,000 meters, for each 100,000 hectares in
the concession; b) during the eight years following the period indicated, he must
drill two or more wells to a depth of at least 10,000 meters for each 20, 000 hectares
or fraction thereof. This provision refers to the drilling of wells for exploration
and exploitation that are not of small diameter nor intended exclusively to obtain
geological information.

A concessionaire may renounce his concession in whole or in part at any
time by giving notice to the Direcci6n General de Petr6leo, accompanied by a new
plan in the case of a partial renunciation; but he must previously pay all taxes due,
and his rights and obligations are reduced to those covering the area retained.

A natural or juridical person who obtained his rights by bidding may not
exercise the right of renunciation unless he has previously complied with the obliga-
tions deriving from his bid and due up to the time of renunciation.

Any mineral substance found in combination or suspension with hydrocarbons
is subject to the provisions of the Code and may be extracted or utilized by the

BOLIVIA

concessionaire who, in order to exercise this right or to interrupt or reject it,
must duly notify the Executive Power through the Direcci6n General de Petroleo.

Refining, manufacture, and transportation. Any holder of a concession for
exploration and subsequent exploitation or for direct exploitation who desires to
make use of his subsidiary right to refine or manufacture, process, or transport
the substances covered by the Petroleum Code, must so indicate to the Direccion
de Petroleo, accompanied by projects and plans of the works and installations pro-
posed and a descriptive memorandum thereof.

Within sixty days after receipt of the application, the Direcci6n General shall
approve it or indicate any technical objections deemed appropriate. Within the next
thirty days, if there are objections, the concessionaire shall make any necessary
explanations and after a like period the Direccion General shall approve the new
plans or maintain its objections. In the latter case the concessionaire is granted
sixty days to correct the objections or the application will be considered abandoned.
If approved, work must be started within one year from the date of approval, or the
proposal will likewise be considered abandoned.

A person who is not the holder of a concession of exploitation desiring to ob-
tain an independent concession for refining and manufacture or processing or for
transportation, must apply directly to the Direccion General de Petr6leo, accom-
panying the application by plans, projects, and memoranda and an indication of the
period when work will be started. If there are no objections to the application, it
is transmitted to the Executive Power, with a report thereon, and the concession
and respective title will be granted by executive order (resoluci6n supreme). If
there are objections, the same procedure as indicated above is to be followed. The
concessionaire must begin work within a maximum period of one year countingfrom
the date of the executive order.

Independent concessions shall have a life of forty years counting from the date
of authorization; or a duration equal to that of the principal concession if based on
subsidiary rights. In no case is such a concession an exclusive privilege which will
prevent the granting of similar rights to other persons.

A concession for refining or manufacturing or processing confers the right to
refine, manufacture, or process the substances covered by the Petroleum Code; to
construct aqueducts, pumping stations, tanks, depots, buildings, hospitals; to con-
struct roads and railways which will connect various establishments of the conces-
sion or centers to which the substances must be transported; to install apparatus
necessary for the industry and to produce or renovate materials used in operations;
and in general to construct any works necessary for refining, manufacturing, or
processing petroleum and its derivatives. The concessionaire also has the rightto
process and refine products of other concession holders and those acquired from
third parties for such purposes.

A transportation concession confers the right to transport the substances
covered by the Code; to construct special roads, pipelines, pumping stations, port
works, depots, and buildings; to operate machinery, vessels, and other vehicles;
and in general, to construct and operate any roads or works related to the conces-
sion and required for the transportation of hydrocarbons. The concessionaire may
30 also acquire these substances from third parties in order to transport them.

PETROLEUM

Independent transportation concessions are regarded as a public service.
Whenever the capacity of its plants and means of transportation permit, every con-
cession holder of any class is obligated to refine, store, and transport petroleum
and its derivatives which the State or third parties may deliver for such purposes,
charging rates fixed by mutual agreement, as approved by the Direcci6n Generalde
Petroleo.

The Executive Power shall reserve to Yacimientos Petrollferos Fiscales Bo-
livianos, inwhole or in part and according to its possibilities, the refining intended
for domestic consumption, and the distribution of derivatives for this consumption.
In this case, a concession holder may exercise his rights only for export purposes
or for his own use.

The extraction of natural gasoline is not considered as refining, or manufac-
turing or processing, but as an exploitation activity.

Taxation. The exploration and exploitation of substances covered by the Pe-
troleum Code, and their refining, storage, and transportation is subject to a special
tax system, contained in chapter VII of the Code, independent of the general system
of taxation of the country.

The holder of a concession for exploration and subsequent exploitation shall
pay annually during the period fixed for exploration, for each hectare or fraction
thereof of area, the following license fees in United States currency:

1) An annual license fee, for the period of exploration

Zone I $0. 05
Zone II 0.03
Zone III 0. 02

2) During any extension period

Zone II $0. 05
Zone III 0.03 for the first extension
0.04 for the second extension

3) A license fee of $0. 07 1/2 for each hectare retained in the period of ex-
ploration.

Both the holder of a concession for exploration and subsequent exploitation and
a concession for direct exploitation shall pay the following for each hectare granted
or selected for exploitation:

In the event that a participation share or royalty goes to the State, that amount
is deductible from the license for exploitation. But in all cases a concession holder
must always pay the following minimum per year per hectare: Zone I $0.15;
Zone II $0. 10; Zone III $0.08.

The State is to receive a share or royalty of 11 percent of the crude petrole-
um, natural gas, natural asphalt or other substances exploited and used by the con-
cessionaire. This share is to be measured in the production field and paymentmay
be wholly or partially in kind or in money, at the option of the Executive Power.

The license fees and royalties are inherent obligations of a concession and
their payment is obligatory even if the concessionaire will suffer financial losses.

In addition to the licenses and royalties indicated above, every holder of a
concession for exploration and exploitation must pay a fixed annual tax of 30 percent
on net profits shown by their annual balance statements for operations in Bolivia.

The holder of an independent refining and/or transportation concession, is to
pay the tax on profits as established in regular and current tax laws, the payment
to be made in cash in the currency in which the profits were received.

A concessionaire who transports petroleum and its derivatives by pipeline or
other special means or works shall pay a tax ordered by the Executive Power on
transportation made for third parties, the tax not to exceed 2 1/2 percent of the
amount received for such services.

A transfer of a concession of exploration or exploitation is subject to a tax of
5 percent in addition to other taxes described herein. Transfers between branches
of the same enterprise pay one half this tax.

If a concession holder fails to complete the drillings prescribed in chapter V
as minimum obligations, he must pay a tax of $20 for each meter not drilled during
the first seven years and $30 for each meter not drilled during the succeeding eight
years.

Whenever it is suitable to the national interest, the Executive Power may
lower the royalty or share of the State to 7 1/2 percent, for a period of not more
than 15 years. This power concerns only Zones II and III, and is not applicable to
Zone I.

PETROLEUM

The Code contains details concerning periods, methods, and conditions for
payment of the license fees, taxes and royalties (in kind or money), and defines net
profits, operation expenses, and other permitted deductions.

Net losses in operations during a tax year may be distributed over subsequent
years and subtracted as deductible items, but they may not be distributed over more
than seven successive tax periods, nor deducted in any form seven years after a
loss occurs.

Capital brought into the country by a concessionaire may be amortized, this
option, in yearly payments of not more than 20 percent, counting from the beginning
of commercial exploitation of the substances covered by the Code.

There is an additional tax of 50 percent on excess profits. The Code defines
what profits are considered as excess, and provides certain cases of exemption
from this tax.

Exports made by a concessionaire of petroleum, its derivatives, natural gas,
and products obtained from refining shall be free and therefore exempt from taxes,
charges, surcharges, customs duties, or any other payment against such exports.

During the time a concession is in force, the holder is entitled to free impor-
tation, including exemption from consular charges, on tools, implements, equip-
ment, machinery, pipe, materials, and other items intended for the work of explora-
tion, exploitation, refining, storage, and transportation of hydrocarbons.

He is likewise exempt from any tax imposed or that may be imposed on con-
struction and installations or equipping of buildings and works that must be under-
taken in compliance with labor and social laws, and on any machinery, tools, im-
plements, and materials necessary for such work. However, articles for provision
stores and others imported for sale to workers are not entitled to exemption from
duty.

Special equipment required in the activities may also be imported temporarily
duty free. The obligation to reexport them expires in two years, with the right to
extension for two years more.

A concession holder may freely convert foreign exchange derived from his
capital investment or the sale and exportation of hydrocarbons. He may likewise
maintain abroad foreign exchange derived from sales and exports, but without preju-
dice to the requirement of submitting statements and exchange or deposit receipts
to the Executive Power. He may at any time also convert into foreign currency any
excess Bolivian currency.

Since a concessionaire is required to pay license fees, royalties, and income
taxes in foreign currency, he is not subject to the requirement of compulsory sale
of foreign exchange as is required of other exporters.

Payment of license fees, royalties and other taxes, duties and charges
indicated frees the activities, property, rights, and income of concessionaire from
any other tax, duty or contribution regardless of its character or designation, and

BOLIVIA

whether national, departmental, municipal, or university, for the duration of the
concession, as well as any other additional charge against the concession or the
substances and products obtained from it. This exemption extends to dividends paid
or distribution of reserves by a concessionaire that is a juridical person.

With the exception of certain special cases indicated in the Code, the over-all
sum total of royalties, licenses, and other taxes, duties, or contributions paid by a
concessionaire in any one year shall never exceed 50 percent of the net profits for
the same year. If this over-all total does exceed that percentage, it shall be re-
garded as an advance payment of royalty, licenses and other taxes payable in the
following year or years.

Supplementary rights and obligations. A concession holder must provide all
capital, personnel, machinery, installations, materials and supplies required for
his work and activities. He is likewise required to follow the technical principles
applicable to his operations; to take all necessary measures to prevent damage to
deposits, to water-tables and to agricultural, livestock, forest, and wildlife produc-
tion; to adopt adequate safety measures to prevent or fight fires and other accidents;
to prevent the loss of substances extracted; and to keep within the country special
accounts of drilling, production, refining, transportation, and storage operations,
separate from the commercial bookkeeping required by pertinent laws.

He must submit annually to the Direccion General de Petroleo a reportcover-
ing his work and activities for the preceding year; statistics and balance sheets re-
lating to the financial affairs of the enterprise; any information requested by the
Direccion General concerning his work, operations, and production; and geological
or geophysical data relating to the concession. He must also submit within the first
fifteen days of each month, a report on the substances exploited during the previous
month and any information needed to determine their selling price.

Whenever required by the Executive Power, a concession holder must supply
crude petroleum or derivatives for domestic consumption and may export only the
excess. This supply will be divided pro rata among producers according to the pro-
duction by each and the needs of domestic consumption. Selling prices are to be
fixed by mutual agreement between the producer and the Executive Power.

In the event of an emergency and in accordance with provisions decreed by the
Executive Power, a concessionaire is under special obligation to meet the needs of
national defense.

A concessionaire shall have the power to occupy public lands needed for his
operations, without cost; to utilize water, firewood, and building materials found
within or outside his concession, by prior agreement with owners; to occupy, ex-
propriate, or impose easements on privately owned lands or lands held by other
concessionaires, if necessary for operations, upon payment of suitable compensa-
tion; to construct, acquire, possess, and operate telephone lines, radio stations,
and other means of communication, which may be freely used by the State; to install
and operate transportation systems by all possible means and routes; and to make
free use of a strip fifty meters wide on public lands, as a safety zone for railways,
pipelines, and canals.

PETROLEUM

Fines. Any infraction of the obligations of a concession holder that are not
Specifically punishable under the Petroleum Code, or that does not come under the
grounds for forfeiture, is subject to a fine of from $100 to $5,000, as indicated in
the regulations, and fines may be doubled in case of repetition of an offense.

In the case of waste not due to unforeseen circumstances or force majeure, a
concessionaire must pay the corresponding royalty to the State, in addition to any
fines imposed.

The penalties indicated above are applied by the Direccion General de Petro-
leo, without prejudice to consequent civil, fiscal, or criminal liability under the
laws 'of Bolivia.
6 .
Voidance, forfeiture and termination. The following are void: a) concessions
granted to persons under legal impediment or legally incompetent to acquire or pos-
sess them, as well as transfers or assignments to such persons, or concessions
made without fulfillment of the requirements prescribed in the Code; b) concessions
of exploration and subsequent exploitation or of direct exploitation, when they over-
lap concessions previously granted, but only as to the part overlapping.

The rights of a concession.holder are forfeited under the following circum-
stances:

1) For not having paid the first annual license for exploration within thirty
days;

2) For not having paid the exploration license for any subsequent year within
three months after it falls due;

3) For not submitting the plans required by chapter V of the Code, or for
failing to make the selection of the area intended for exploitation, in accordance
with and within the periods specified in that chapter;

4) z or not having paid the initial exploitation license within one month follow-
ing notification of the concessionaire granted this right;

5) For non-compliance with the obligation resulting from a bid;

6) If one year elapses without payment of the exploitation license;

7) If the required drillings have not been made as prescribed in chapter V of
the Code, unless such omission is corrected by payment of the fees prescribed in
chapter VII.

Independent cc-iessions for refining, manufacture or processing, or trans-
portation, will be forfeited if work is not begun within the periods prescribed in
chapter VI.

A concession may be declared forfeited upon failure to pay the licenses,
royalties, or income taxes for one year. Until such forfeiture has been declared

BOLIVIA

the concession holder may request a period of grace after which payment of the to-
tal amounts due plus interest at 1 percent monthly may be made.

A concession is terminated by expiration of the period for which itwas grant-
ed or by express renunciation made by the concessionaire.

An executive order (resoluci6n supreme) issued by the Executive Power de-
/ caring the voidance, forfeiture, or termination of a concession may be adminis-
tratively appealed within thirty days after notification to the concessionaire. If the
order is maintained, appeal may be taken to the Supreme Court within eight days.

Voidance, forfeiture, or termination does not exclude pertinent action by the
Executive Power or third parties to protect their rights in accordance with the laws
of Bolivia.

If a concession is declared void, forfeited, or terminated, it becomes the
property of the State without obligation of payment, including all wells, permanent
operating and conservation equipment, and any other stationary works permanently
incorporated in the process of exploitation, with the exception of trunk and lateral
pipelines, refineries, gasoline plants, and mobile equipment. Administrative build-
ings and hospitals, if located outside the area of the concession, may be acquired
by the State by payment of a reasonable price.

The State also may acquire the main pipelines, refineries, gasoline plants,
and mobile equipment at a fair price. If it does not use this option within 90 days
after declaration of voidance, forfeiture, or termination, the concessionaire may
withdraw all mobile property, provided that he has complied with all obligations re-
lating to the concession.

5. Yacimientos Petrolfferos Fiscales Bolivianos

This autonomous entity, usually abbreviated as Y. P.F. B. shall have the ex-
clusive right to explore and exploit the substances covered by the Petroleum Code,
within the Zone assigned to it and in this Zone no natural or juridical person may
submit application for a concession. But if the Y. P. F. B. decides to obtain conces-
sions in other Zones, it must submit an application in the same manner as any other
applicant without enjoying any special privilege or advantage.

Upon authorization by the Executive Power, it shall have the power to organize
companies or make leasing or operating contracts with any natural or juridical per-
son for the exploration and/or exploitation of the area included in its reserve Zone,
this to include contracts for the use of extracted substances. In companies so or-
ganized, the Y. P. F. B. shall retain a minimum of 51 percent of the shares.

The Y. P. F. B. may freely engage in the marketing, transportation, and expor-
tation of petroleum and its derivatives. With prior authorization by the Executive
Power it may also finance the construction and expansion of pipelines, throughloans
or jointly with the participation of natural or juridical persons.

PETROLEUM

All reserves of petroleum areas or surfaces established by previous laws and
governmental provisions prior to the Code are abolished.

D.S. 4403 of May 21, 1956, on the basis of the new Petroleum Code, author-
izes the Y. P. F. B. to sign a contract with the Bolivian Gulf Oil Co., S. A. organ-
ized in the State of Delaware and a subordinate of the Gulf Oil Corporation, which
authorizes the company to undertake exploration work within the Y. P. F. B. zone to
which article 20 of the Petroleum Code refers. This is to coveranareaof 1,500,000
hectares, exclusive in character except for explorations that the Y. P. F. B. may
need to make in the same area. Within the area, the Gulf Company will havp the
exclusive right to exploit, refine, store, and transport any hydrocarbons that are
discovered.

The Y. P. F. B. was also authorized to sign a contract with the Bolivian Gulf
Oil Co. for a loan of $5,000,000 payable in dollars or in petroleurh and to grant to
the Company an option to finance the construction of the Camiri-Sicasica pipeline at
an estimated cost of $35, 000, 000 and with an estimated capacity of 50, 000 barrels
a day. Both contracts are to take effect after approval by Congress and after com-
pletion of agreements between Bolivia and Chile for the construction of one or more
pipelines to the Pacific Coast.

BRAZIL

MINING LEGISLATION

1. General Principles

Mining in Brazil, with speciallegislation applicable topetroleum, is governed
by Federal law. States and municipalities have the right to enact supplementary
legislation, but as the Mining Code is very complete there is no appreciable room
for this to take place.

Until the first Mining Code and the Constitution, both of July 1934, all miner-
al deposits belonged to the surface owner and could be worked without the necessity
of a government concession. That Code, however, declared all deposits then un-
known to be Government property and set a time limit, which expired on July 20,
1936, by which all known deposits were to be reported.

This brought about the existence of two different classes of mineral deposits,
those which were known and being exploited as of July 1934 and those which have
been discovered after that date. Deposits of the former class still belong to the
surface owner, while those of the latter class belong to the Federal Union.

Under article 153 of the present Federal Constitution, the development of ei-
ther class requires consent of the Federal Government, which is given by a presi-
dential decree. As yet no action has been taken to compel enterprises exploiting
privately-owned mineral deposits to obtain permission to continue operations. In
practice, such authorization or concession is required solely for new undertakings.

The owner of the surface land in which a deposit is located is assured a pri-
ority right to a mining concession under section 1 of article 153. This means that
the surface owner has the assurance that if any other person prospects and proves
a mineral deposit, he, as owner, will be given preference to the concessionby the
Federal Government.

The basic law on mining in Brazil is now the Mining Code enacted as Decree-
Law No. 1985 of January 29, 1940, with its subsequent amendments. As states in
article 1, this Code defines the rights in mineral deposits and mines, establishes
rules for the utilization thereof and regulates intervention by the State in the mining
industry, as well as its control over firms that utilize mineral raw materials. Min-
ing property rights are governed by the same principles as other property, except
for the special provisions of this Code.

2. Deposits

Article 3 of the Mining Code classifies deposits into the following eleven cate-
gories, which form the basis for taxation and other purposes:

MINING

I. Primary deposits of precious metals

II. Alluvial and eluvial deposits of precious metals

III. Primary deposits of base metals

IV. Alluvial and eluvial deposits of base metals

V. Primary and secondary deposits of rare metals

VI. Primary deposits of non-metallic ores and minerals

VII. Alluvial and eluvial deposits of non-metallic ores and minerals

VIII. Deposits of solid fossil fuels

IX. Deposits of bituminous and pyro-bituminous rocks

X. Deposits of petroleum and natural gases

XI. Thermal and gaseous mineral waters

Questions concerning the classification of deposits are decided by the Nation-
al Department of Mineral Production.

Mineral deposits constitute real property separate and distinct from the sur-
face. Ownership of the surface includes ownership of the subsoil but not of mineral
or fossil substances useful to industry.

Under article 6 of the Mining Code, the right to prospect for minerals or to
operate a mine can be granted only to Brazilian natural or juridical persons, the lat-
ter being constituted by Brazilian partners or shareholders.

Brazilian men married to foreign women or Brazilian women married to for-
eign men, even under the regime of community property, may be partners in mining
enterprises, but in the event of transfers inter vivos or causamortis only succession
to native-born Brazilians is permitted.

Since the Federal Constitution of 1946 does not place this restriction upon
mining companies the Department of Agriculture no longer requires evidence of
nationality of stockholders. This does not apply to petroleum deposits which are now
a Federal Government monopoly.

3. Prospecting Licenses

The right to prospect for minerals is granted by authorization from the Fed-
eral Government. Applications should be submitted to the Minister. of Agriculture
and should contain the following information:

1) The mineral substance or substances to be prospected;

2) The locality, district, municipality and State in which located;

BRAZIL

3) The area desired, in hectares;

4) Names of the owners ofproperty involved and definition of the area applied
for, with accompanying sketch or map;

5) Proof of the financial capacity of the applicant;

6) Proof of his Brazilian nationality.

If application is made for prospecting deposits already denounced and record-
ed, the applicant must exercise his right of priority assured by article 7 and in ac-
cordance with Law No. 94 of September 10, 1935, as well as the Constitution, with-
in a period of 90 days, after which such right shall cease.

Prospecting licenses, issued in the form of a decree, are subject to the fol-
losing conditions:

1) The authorization is personal and transferable only to natural heirs or
surviving spouse, or in commercial succession if the successor meets
the requirements as to financial capacity and Brazilian nationality.

2) The authorization is valid for two years, but may be renewed, atthe dis-
cretion of the Government, in cases of force majeure.

3) The field of prospecting may not exceed the area stated in the decree.

4) Operations shall be supervised by the National Department of Mines.

5) Prospecting in the beds of rivers shall be permitted subject to the re-
quirements of the interests of navigation or traffic.

6) Prospecting in the vicinity of fortifications, public thoroughfares, rail-
ways, sources of drinking water, or of public parks, shall be subjectto
the consent of pertinent authorities.

7) Rights of third parties shall be respected, with due compensation for loss
or damages.

8) The permit holder may utilize any output obtained during prospecting, for
purposes of study and maintenance of operations.

9) Detailed reports on operations must be submitted.

Each prospecting license is restricted to the following maximum areas:

The same person may not be granted more than five licenses to prospect
40 mineral deposits of the same class.

MINING

4. Operating Concessions

Authorization to operate (lavra) maybe applied for only if the mineral deposit
has been suitably prospected and is limited to the area stipulated for prospecting.
The authorization continues as long as operation is maintained in full activity. An ap-
plication must indicate:

1) The nature and class of the substance or substances to be worked;

2) The area necessary;

3) The easements required for the mine;

4) Any special or incidental conditions;

5) A plan for proper utilization of the deposit with a map thereof, and proof
of the applicant's financial capacity;

6) If the applicant is not the prospector he must submit proof of Brazilianna-
tionality.

The area covered by one concession cannot be divided, nor may a concession
holder operate only a portion of the deposit, in disregard of the establishedplan, un-
less authorized by the Government.

A concession holder must comply with the following conditions, among others:

1) To commence operations within one year from the date of the decree, ex-
cept in cases of force majeure;

2) To operate the deposit in accordance with the plan approved by the Minis-
ter of Agriculture, and in accordance with technical rules and mine police
regulations, by professionally qualified persons;

3) To protect the deposit for subsequent utilization;

4) To observe regulations concerning loss, drainage, or pollution of waters,
etc., in the concession;

5) To extract only the useful substances indicated in the authorization or those
associated therewith in the deposit;

6) To submit an annual report of operations to the National Department of
Mines;

7) To permit the prospecting of other substances on the concession, when so
authorized;

8) To answer for all damages or injury sustained by third parties resulting
from operations;

9) To observe strictlyprovisions concerning transfer of the concession.

BRAZIL

5. Government Supervision

The Government, through the National Department of Mines, supervises all
services of prospecting and the operation of mines, as well as enterprises that uti-
lize mineral raw materials, particularly as relating to proper utilization of the de-
posit, conservation and safety of constructions and works, precautions against in-
jury to adjoining properties, protection of the public welfare and of the health and
safety of workmen.

Enterprises that utilize domestic mineral raw materials are subject to the
same restrictions as mining concerns with respect to their nationality and that of
partners and shareholders.

Supervision is carried out by government mining engineers, sanitation physi-
cians and tax officials. Enterprises using mineral raw materials are also subject
to control by the Ministry of War under existing legislation.

Providing certain technical conditions as to organization are met, a State may
exercise jurisdiction over prospecting and mining operations relating to minerals in
Classes I, II, VII, IX, X and XI.

6. Gold Mining

Panning and Washing. Articles 62 to 67 of the Mining Code govern the panning
of alluvial gold and washing for diamonds. Decree-Law No. 466 of June 4, 1938,
also governing the subject, remains in force as stated in article 77 of the Code. Such
operations in lands and streams of the public domain are free. In private property
such works shall depend on an understanding with the owner, but compensation for
servitudes and damages shall not exceed 10 percent of the value of production.

Searching, without the use of explosives, in the debris of mining veins, for
substances to be treated by rudimentary processes, is legally equivalent to panning
or washing.

Authorization to prospect or operate a mine has priority over panning or wash-
ing operations.

Control of the commerce in gold and other substances extracted by panning or
washing is under the Ministry of Finance, through the Director of Internal Revenue
and the Internal Revenue Department of the Treasury and the Bank of Brazil.

Benefits for Gold Mining Enterprises. Law No. 2418 of February 10, 1955
extended for a period of twenty years article 1 (a) of Decree No. 24,195 of May 4,
1934 which granted benefits to enterprises, companies, or firms engaged in min-
ing of gold or its by-products. The following benefits were provided: guarantee for
twenty years of no increase in federal taxes on gold or on gold mining companies,
and a guarantee for the same period that exemption from customs duties and other
benefits in effect would be maintained.

MINING

7. Mineral and Thermal Springs

In addition to the provisions of the Mining Code applicable to mineral and
thermal springs, included as Class XI among the categories of mineral resources,
these substances are governed by a Code, enacted as Decree-Law No. 3094 of
March 5, 1941.

Law No. 2661 of December 3, 1955 provides regulations for paragraph 4 of
article 153 of the Federal Constitution which states that in cases indicated by law
the Union will assist the States in studies relating to thermomineral waters for
medicinal use and in the establishment of stations for their utilization.

Law No. 2661 provides that any thermomineral, hydromineral, or simply
mineral site recognized by a State law and having natural thermal or mineral springs,
operated in accordance with provisions of this law and of federal Decree-Law No.
7841 of August 8, 1945, shallbe regarded as athermomineral station. If the springs
are located in an urban or suburban district of a city, the latter may be considered
a station; if the springs are located in a rural district, the area of the station is to
be determined by law.

The assistance to be given will be granted under agreements signed with in-
terested States or Municipalities and will consist of: a) preparation of a plan of
improvements for each station; b) study of the mineral waters suitable for medici-
nal uses and construction of works for the captation and conduction of such waters;
c) marking out of areas to be acquired by the Union and which are to be reforested
for the protection of springs and watersheds; d) establishment of priorities in the
granting of assistance for the construction of resort camps; e) provision of financial
resources for construction works and the equipment of baths, including the problem
of electric power,etc.

The Ministry of Health is charged with supervision of the hydrological and
climatic resources of the country, in the interest of science and public health.

8. Fees and Royalties

In accordance with Decree-Law No. 524 7of February 12, 1943, amending per-
tinent articles of the Mining Code, the following fee is payable on the area tobe pro-
spected:
Per hectare

For an operating concession the fees to be paid are twice those indicated for
prospecting, in the corresponding classes of minerals.

BRAZIL

In addition to the above fee, the concession holder must pay into the National
Treasury an amount equal to 3 percent of effective production as computed at the
mouth of the mine, if he is the owner, or 1 1/2 percent if he is not the owner of the
deposit.

9. Nuclear Energy

National Research Council. Law No. 1310 of January 15, 1951 established
the National Research Council, for the purpose of promoting and stimulating the de-
velopment of scientific and technological research in any field of knowledge. The
Council is a juridical person directly subordinate to the President of the Republic,
with headquarters in the Federal Capital, and enjoys technical, scientific, adminis-
trative, and financial autonomy in accordance with the law.

Article 3 of the law confers various functions on the National ResearchCoun-
cil among which is that of cooperating with official technical agencies in research
and prospecting reserves existing in the country of materials suitable for the pro-
duction of atomic energy. For purposes -of the law, such materials include uranium,
thorium, cadmium, lithium, berylium, zirconium, and boron and products derived
from their treatment, as well as graphite and other materials designated by the
Council.

Article 4 prohibits the exportation in any form of uranium and thorium and
their compounds or ores, except from government to government, after approval
by competent agencies. Berylium ores may be exported only by express authoriza-
tion of the President of the Republic.

Article 5 provides for control by the Federal Government, through the Nation-
al Research Council or, when necessary, the General Staff of the Armed Forces or
other agency designated by the President of the Republic, of all activities relating
to the production of atomic energy, without prejudice to freedom of scientific and
technological research. The President of the Republic has exclusive jurisdictionin
directing general atomic energy policy in all its aspects and phases.

The National Research Council is authorized to adopt any necessary measures
for research in and industrialization of atomic energy and its applications, includ-
ing the acquisition, transportation, protection, and transformation of the raw mate-
rials used for such purposes. The Executive Power may take any steps necessary
to promote and stimulate the installation of industries for the treatment of uranium,
thorium, cadmium, berylium, and boron ores, and especially of uranium and
thorium compounds, and any other materials suitable for the production of atomic
energy.

The National Research Council consists of a Deliberative Council, a Techni-
cal and Scientific Division, and an Administrative Division. The Chairman of the
Council is the chief authority over the entire organization and is responsible for
carrying out the directives of the Deliberative Council. The technical and adminis-
trative services of the Research Council are located in the Federal Capital but the
Chairman is authorized to convoke meetings anywhere in the country.

MINING

The funds for the maintenance and progress of the services of the Research
Council and for the conservation, renovation, and expansion of its installations are
derived from budgetary appropriations from the Federal Union; from subsidies
granted by States and Municipalities; from donations, legacies, or other funds re-
ceived from natural or juridical persons; income obtained from its properties;taxes
and fees; incidental receipts; special credits, etc.

Law No. 1310 also established a National Fund for scientific and technological
research, to be administered by the Council. Special credits granted for this pur-
pose will be incorporated in the Fund, together with budgetary balances, etc. The
apparatus, instruments, laboratory equipment, chemical products, and any other
materials imported by the Council for carrying out its purposes are exempt from
duties and taxes.

Regulation of Atomic Research. Decree No. 30,230 of December 1, 1951
enacted the Regulations governing authorizations for exploring and working deposits
of minerals used in the production of atomic energy, as listed above. The Federal
Government has jurisdiction over such deposits and may grant exploration permits
to Brazilians or to companies organized in Brazil under the conditions and in ac-
cordance with procedure imposed by the Mining Code and these Regulations.

No permit for exploration will be granted for an area within the submarine
continental shelf, as incorporated in the national territory by Decree No. 28, 840 of
November 8, 1950, without approval of the National Research Council.

Applications for permits to explore or work these substances are to be sub-
mitted to and examined by the National Department of Mineral Production, which
agency may consult with the National Research Council, if necessary. If deposits
lie within a defense zone, the National Security Council is also consulted.

Exports of Strategic Materials. Decree No. 30,583 of February 21, 1952
created the Commission for Exports of Strategic Materials, under the Ministry of
Foreign Affairs. The Commission has these functions: a) to conduct sales of
uranium and thorium and their ores and compounds, as authorized by Law No. 1310;
b) to approve or amend export schedules of any strategic materials, as so defined
by the National Security Council; c) to countersign invoices for exports of strategic ma-
terials after they have been cleared by the National Department of Mineral Production.

In making sales of such materials, the Commission for Exports will take into
account the interests of national security, the needs for maintaining stockpiles re-
quired for such security, and instructions received from the National Security Coun-
cil. Exporters of strategic materials must periodically submit to the Commission
their export schedules and detailed information as to purchasers, amounts, prices,
etc.

In accordance with Decree No. 38, 232 of November 10, 1955, the Commission
for Exports of Strategic Materials is composed of the Minister of Foreign Affairs,
as chairman, and one representative each for the Ministry of Finance, Ministry of
Agriculture, General Staff of the Armed Forces, National Research Council, For-
eign Commerce Department of the Bank of Brazil, the Secretary General of the Na-
tional Security Council, and the Economic and Consular Department of the Ministry 45
of Foreign Affairs.

BRAZIL

Institute of Atomic Energy. Decree No. 39, 872 of August 31, 1956 created
the Institute of Atomic Energy in the form of an agreement for this purpose signed
by the National Research Council and the University of Sao Paulo on January 11,1956.
The Institute is to be located in Sao Paulo at a site selected by the University.

The Institute of Atomic Energy, national in scope, is aimed at promoting re-
search on atomic energy for peaceful uses; to produce radio-isotopes for studies
and experiments anywhere in the country; to contribute to the training of scientists
and technicians from the several States, in nuclear science and technology; to es-
tablish bases, constructive information, and pilot reactors intended for production
of atomic energy for industrial purposes, in accordance with the needs of the coun-
try. For this purpose, the National Research Council is installing an experimental
nuclear reactor at the Institute of Atomic Energy.

National Commission on Nuclear Energy. By Decree No. 40,110 of October
10, 1956, the President of the Republic, on the basis of Law No. 1310, established
the National Commission on Nuclear Energy, directly subordinate to the President
of the Republic, and entrusted it with proposing measures deemed necessary for
orientation of atomic energy policy in all its aspects and phases.

This Commission consists of five members, the chairman and other four
members all being appointed by the President of the Republic. The chairman of the
Commission is charged with carrying out the nuclear energy policy approved by the
President of the Republic.

International Atomic Energy Agency. Legislative Decree No. 24 of July 24,
1957 approved the Statute of the International Atomic Energy Agency. At the endof
July 1957, Brazil deposited the instrument of ratification of the Statute of the said
Agency which was created during the International Conference on Atomic Energy,
held at the Headquarters of the United Nations in September-October, 1956. The
Statute was signed on October 26, 1956.

Cooperation with the United States. In 1955 an Agreement was signed
between Brazil and the United States for the installation of a research reactor in
Sao Paulo. On July 31, 1957 the two countries signed a Cooperation Agreement
concerning peaceful uses of atomic energy, providing for supplying enricheduran-
ium and power reactors.

PETROLEUM LEGISLATION

1. Petroleum Monopoly

As indicated, the Mining Code does not apply to petroleum and kindred sub-
stances. National control of the petroleum industry was establishedby Decree-Law
No. 3236 of May 7, 1941. Under this decree all deposits of petroleum and natural
gases are the private property of the Federal Union, and all operations in this
sphere of activity were subject to the authorization and supervision of the National
Petroleum Council, in accordance with the Regulations of the Council enacted in
Decree No. 29,171 of January 18, 1951.

Article 4 of Law No. 2004 calls for new regulations to govern the National
Petroleum Council, on the basis of its provisions, but these have not yet been en-
acted.

The basic law on the subject is now No. 2004 of October 3, 1953, which pro-'
vides that the petroleum industry of Brazil shall be a monopoly of the Federal Union,
to include the following:

1) The prospecting and operation of all deposits of petroleum and other fluid
or gaseous hydrocarbons existing in Brazil;

2) The refining of all domestic or foreign petroleum;

3) The maritime transportation of domestic crude petroleum and petroleum
products produced in the country, as well as all transportation of these
products by pipelines.

Refineries in operation at the date of the enactment of the law and those whose
installation was authorized up to June 30, 1952, if operations are begun within two
years, as well as privately-owned tankers in use when the law was enacted, are ex-
cluded from the monopoly established.

The monopoly is exercised through the National Petroleum Council, as the di-
recting and supervisory organ, and by a corporation, Petr6leo Brasileiro S. A. -
Petrobras and its subsidiaries, as the operating organ, organized in accordance
with the provisions of Law No. 2004.

The National Petroleum Council, an agency directly subordinate to the Presi-
dent of the Republic, has the primary function of supervising all matters relating to
the national supply of petroleum. Under article 3 of the law, this includes the pro-
duction, importation and exportation, refining, transportation, distribution and
trade in crude petroleum obtained from either wells or shale, and its derivatives.
Any other fluid hydrocarbons and bases are likewise included.

BRAZIL

The corporation, generally referred to by its abbreviation Petrobras, is or-
ganized to undertake all prospecting, producing operations, refining, trade in and
transportation of petroleum, from wells or shale, and any correlative activities.
Its operations are subject to the approval of the National Petroleum Council.

The corporation has an initial capital of four billion cruzeiros, divided into
twenty million shares of a par value of 200 cruzeiros each. By the year 1957 the
capital is to be increased to a minimum of ten billion cruzeiros by subscription.

The capital consists of ordinary shares, with voting rights, and preferred
shares, without voting rights and inconvertible into ordinary shares. The capital
increases may be wholly or partially in preferred shares exempt from restrictions
established by article 9 of Decree No. 2637 of September 26, 1940.

Shares may be grouped into multiple blocks of 100 up to 100,000 shares, as
regulated by the corporation's statutes. Preferred shares shall have priority in the
amortization of capital and in the distribution of the minimum 5 percent dividend.

The Federal Government subscribed the entire initial capital, in ordinary
shares, through the contribution of petroleum property and rights in its possession,
including permission to utilize petroleum beds, bituminous and pyro-bituminous
rocks and natural gases.

Transfers of shares by the Government or subscriptions to increase the capital
by entities and persons granted this right by law may not, under any circumstances,
result in less than a 51 percent participation by the Government in either voting
shares or the entire capital.

The statutes of the corporation, guaranteeing preference to the first category
listed herein, may permit only the following classes of shareholders:

1) State and municipal governments and similar juridical entities.

2) The Bank of Brazil and joint corporations (sociedades de economi'a mixta)
which by law are under permanent government control.

3) Native Brazilians or Brazilians naturalized for more than five years, re-
siding in Brazil, either single or married to Brazilians or foreigners,
provided such marriage does not stipulate community property ownership
or any other system permitting transfer of property through marriage.
Purchase of ordinary shares is restricted to 20, 000 units by any one per-
son.

4) Private juridical entities, organized in accordance with article 9(b) of
Decree-Law No. 4071 of May 12, 1939. Purchase of ordinary shares is
limited to 100, 000 units by any one entity.

5) Private Brazilian juridical entities containing only such persons as are
indicated in No. 3. Purchase of ordinary shares is restricted to 20, 000
units by one entity.

PETROLEUM

The corporation is exempt from certain taxes of organization, property trans-
fers, etc., and from import duties on materials for its own use, as well as from ad-
ditional charges on machinery, parts, accessories, construction materials, etc.

In accordance with article 25 of the law, the Executive Power may pledge the
National Treasury as guarantor, up to 25 percent of the paid-in capital, on financing
obtained abroad by the corporation or its subsidiaries.

A dividend may be paid on the shares subscribed by the Federal Union only
when the shares held by the public, the quasi-governmental entities, the municipali-
ties and states obtain dividends of 8 percent.

In addition to the capital to be obtained by public subscription, the increase in
capital to be effected by 1957 is to be obtained from the following sources:

1) Revenue obtained from the single tax (imposto unico) on liquid fuels and
lubricants, levied under Law No. 1749 of November 28, 1952.

2) Revenue from the import duties and sales taxes on automotive vehicles,
and the tax on remittances abroad covering such imports.

3) The special taxes for prospecting, etc. levied on subsidiary concessions,
and fines imposed for infractions.

4) Incorporation of new petroleum deposits into the assets of the organization.

5) From the special tax to be imposed until 1957 on the use of automotive
vehicles. This tax is levied on a graduated scale on automobiles, trucks,
buses, motorboats and airplanes, with higher rates applicable to vehicles
for private use and lower rates on commercial vehicles. Contributors to
this tax receive certificates which will eventually entitle the holders to
shares in the corporation.

The board of directors of the corporation consists of a maximum of nine mem-
bers, four of whom are appointed by the President of the Republic, three elected by
the shareholders representing public entities other than the Federal Union and two
by private shareholders.

The corporation is now actively functioning, under its statutes adopted on
January 18, 1954.

2. Tax Exemptions for Petrobras

Decree No. 37,804 of August 26, 1955 provides that the tax exemptions grant-
ed to Petrobras by Law No. 2004 of October 3, 1953 and any other applicable provi-
sions, shall include the following:

1) Stamp tax and similar taxes on the instruments of organization of the com-
pany, subscription of capital, proxies for voting in the general assemblies,
acquisition of property, and instruments governed by federal law.

BRAZIL

2) Import duties and similar taxes, including "additional" taxes, consular
fees, and consumption tax, with respect to machinery, parts and acces-
sories, apparatus, tools, instruments, and materials of all kinds for use
in the construction, installation, expansion, improvement, operation, and
maintenance of its installations.

3) Taxes on transfers of funds abroad, regardless of their nature or origin.

4) Taxes collected by the Union in the Federal Territories.

The materials and goods referred to in section 2) not of domestic origin are
to be entered by order of customs inspectors.

Decree No. 35,308 of April 2, 1954 approved the organization of the Petr6leo
Brasileiro, S. A., customarily known as Petrobras, and the respective acts con-
taining the minutes of the public meeting held March 12, 1954. These documents
were recorded by the Government in the Register of Commerce.

3. Relations between the National Petroleum Council and Petrobras

Decree No. 40,845 of January 28, 1957 provides that the Union shall exercise
the monopoly created by Law No. 2004, through the National Petroleum Council, as
an organ of direction and supervision of Petrobras and its subsidiaries.

Petrobras is to submit annually to the Petroleum Council, by September 30,
the schedule of its future activities, especially of work to be carried out during the
following year. The schedule should cover the following data:

1) Exploration and working of petroleum deposits

a) exploration of the different sedimentary basins of the country;

b) geology, by basins, with indication of the number of crews to be utilized;

c) auxiliary drillings for geological prospecting;

d) geophysical studies made, indicating the processes to be applied in the
different basins, number of crews, and locations;

e) pioneer wells, including the number of soundings taken;

f) development of fields for producing petroleum and natural gas;

g) production of the various fields, with an indication of estimated reserves
in each field, and-estimate of quantities that can be extracted, number of
wells to be put in production and the average production of each;

h) installation of storage tanks for petroleum.

PETROLEUM

2) Data on schist deposits

a) exploration of deposits;

b) studies on mining, firing, and refining;

c) industrial use of deposits already explored and measured, including
their mining, firing, and refining.

3) Petroleum refining program

a) production of existing refineries, and by-products;

b) quality and specifications of each derivative for consumption;

c) installations of new refineries or expansion or alteration in those in
existence;

d) locations of storage tanks for petroleum and derivatives and rare gases;

e) imports and exports of petroleum and its derivatives .and other fluid
hydrocarbons and gases,

4) Transportation by pipelines

a) construction of new pipelines and expansion or alteration of those in
existence;

b) operation of pipelines, including an estimate of amounts to be trans-
ported.

5) Maritime transportation

a) acquisition of new tankers;

b) fleet operations, and estimate of amounts transported.

6) Commerce and distribution of petroleum derivatives, and program of ac-
tivities in this sphere.

7) Training of technical personnel for operating its services, particularly of
nationals, in geology, geophysics, exploration, production, and refining.

Approval of the program implies authorization to carry out all undertakings
except: a) the installation, expansion or alteration of refineries or pipelines; b)
location of storage tanks for petroleum, derivatives and gases; c) importationand
exportation of the aforementioned products, all of which require authorization by
the National Petroleum Council in each case.

To enable the National Petroleum Council to carry out its functions of super-
vising the domestic petroleum supply, the following matters are subject to the final

BRAZIL

approval of the Council: a) location and capacity of refineries; b) the nature and
quantities of products refined; c) imports and exports of petroleum and its deriva-
tives; d) location of storage tanks and minimum stocks to be maintained.

In order that the National Petroleum Council shall be continuously informed as
to the activities of Petrobras, the latter must submit regular reports on: a) explo-
ration and progress in exploration work, quarterly; b) monthly data on drillings,
production of oil and gas, by field and for each well, and consumption of oil and gas.

The National Petroleum Council fixes the selling price for distributors of re-
fined products, the selling price of nationally produced petroleum, and for deriva-
tives, rare gases and other fluid hydrocarbons intended for domestic consumption
or for export. It also fixes export quotas, and minimum stocks of petroleum and
derivatives to be maintained in refineries.

The Council likewise supervises the exploration and working of deposits by
Petrobras and its projects for increasing the petroleum industry; the quality,
characteristics, and quantities of raw materials processed; and the operational
costs of tankers and pipelines. It may issue rules concerning the industry as a
means of regulating the national supply of petroleum.

The president of Petrobras may be called upon to appear within two days at
meetings of the National Petroleum Council for discussion of any matter concerning
the company.

4. Capacity of Authorized Refineries

Decree No. 41,652 of June 4, 1957 provides that the capacity of refineries in
operation in the country, under the terms of articles 43 and 44.of Law No. 2004 of
October 3, 1953, shall be the figures stated in the authorization permits issued by
the National Petroleum Council up to June 30, 1952.

If present installations are able to produce amounts greater than the figure
set in an authorization permit the National Petroleum Council, in the interest of the
national supply, may authorize the refining of crude petroleum in greater amounts,
but to the profit of the federal monopoly and for the account of Petrobras and its
subsidiaries. In such cases, the National Petroleum Council shall establish a fair
remuneration for the use of the installations and for services rendered, and will
promote agreements between Petrobras and the enterprises granted permits.

5. Single Tax on Fuels and Lubricants

Law No. 2975 of November 27, 1956 amended legislation governing the single
tax on liquid and gaseous fuels and lubricants. In accordance with this law, the
production, commerce, distribution, consumption, importation and exportation of
liquid and gaseous fuels and lubricants, of any nature or origin, are subject exclu-
sively to the tax provided for in article 15, section II, of the Federal Constitution,
collected by the Federal Union.

PETROLEUM

Authorization for the importation of lubricants and other derivatives of petro-
leum will be granted only for bulk shipments and the entry of these products in con-
tainers is prohibited. In special cases for which the necessity is duly proved, the
National Petroleum Council may authorize importation, in small quantities, of
specified mineral oils in containers.

The single tax excludes the imposition of any other federal, state, or munici-
pal tax except the income and stamp taxes. The tax is on an ad valorem basis com-
puted on the CIF cost, as follows:

The CIF cost price used as a basis for the tax is the average effective cost of
imports, determined periodically by the National Petroleum Council. Conversion
of the CIF cost into cruzeiros is made at the official exchange rate in effect at the
time and a single surtax fixed for imports of all products enumerated above.

The term liquified gas comprises propane gas and butane gas,isolated or
mixed. The National Petroleum Council defines the technical specifications of all
products in general.

Payment of the single tax on imported product is to be made at the custom
house at the port of entry, on the basis of quantities actually unloaded, one third
payable at the time of unloading and the remainder within sixty days.

The single tax on domestic products shall be equivalent to three fourths of the
amount imposed in cruzeiros on similar products of foreign origin, in the case of
liquified gas and aviation gasoline, "premium" gasoline and equivalents; and for
other products the tax will be one half that imposed on similar foreign products.

Simple, compound, and emulsive lubricants obtained in the country by the re-
generation of used lubricants will be exempt from the single tax for a period of five
years, after which they must pay a tax amounting to one fourth that paid for im-
ported lubricants.

Of the proceeds of this single tax, 40 percent goes to the Federal Government
and 60 percent is divided among the States, the Federal District, and municipalities
in proportion to their area, population, consumption and production. These pro-
ceeds are used for the following purposes, in each case: 75 percent for highway
programs, through the National Highway Fund; 15 percent, in the years 1957 to
1961, as a part of the capital of Petrobras; 10 percent as a part of the capital of the

BRAZIL

Federal Railway Network, during the same period. After January 1, 1962, 90 per-
cent of the proceeds will go to highway programs and 10 percent to the Railway Net-
work, and after January 1, 1972, the entire proceeds will go to the National High-
way Fund.

The National Petroleum Council fixes the selling price of petroleum products
subject to the single tax. It also fixes wholesale prices of petroleum derivatives
and the retail prices of the different supply centers of the country, for such periods
as the Executive Power may deem expedient.

The single tax is included in the selling price of the product to the consumer,
without distinction as to the natural or juridical personality of the importer, pur-
chaser or consumer. The general tax exemptions in effect do not include this single
tax.

Petrobras and enterprises that inay be organized by it are exempt from pay-
ment of the income tax, until 1962, on funds invested in the petroleum industry.

Kerosene, Diesel oil, and fuel oil for use in agricultural and livestock activi-
ties are exempt from the single tax. For purposes of this exemption, the National
Petroleum Council annually fixes quotas for each importer or refiner.

Law No. 2975 took effect as of January 1, 1957 and thereby repealed Law No.
1749 of November 28, 1952.

Decree No. 41,433 of April 25, 1957 established rules for the application of
article 6 of Law No. 2975 of November 27, 1956. This decree provides that the
single tax on liquid and gaseous fuels and lubricants will be collected and paid by
the respective producer to the tax office of his domicile, within sixty days of deliv-
ery of the product to the first purchaser. But a purchaser of fuels or lubricants
who receives the product with the tax still to be paid, shall pay the tax at the tax
office at his domicile.

CHILE

MINING LEGISLATION

1. Legislation

The basic mining legislation of Chile is contained in the Mining Code, enacted
as Decree-Law No. 488 of August 24, 1932, and its Regulations contained in Decree
No. 2228 of December 21, 1932. There are in addition various supplementary laws,
indicated in their proper place in this chapter.

2. Ownership of Mines

The State is the owner of all mines containing gold, silver, copper, mercury,
tin, precious stones, and fossil substances, regardless of the ownership of the sur-
face by corporate entities or individuals. However, any individual has the right to
excavate and prospect in lands regardless of ownership, to search for mines con-
taining any of the above substances; and they may work and process mines and min-
erals and dispose of them as owners, in accordance with the requirements and under
the rules set forth in the Mining Code.

Mining property to which ownership is granted by concession is termed aclaim
or pertenencia. This is defined as a solid whose base is a rectangle of indefinite
depth within the vertical planes that bound it. Its surface face, measured horizontal-
ly, may comprise an area of from one to five hectares, according to the wishes of
the applicant.

Any person except certain government officials and legally incapacitated per-
sons may obtain a mining concession.

Only the surface owner may apply for a claim on other fossil substances, such
as onyx and marble, with the exception of rocks, sand, and other materials used
directly for construction purposes.

Clays in the surface soil and artificial salt beds formed along the shores of
the sea, lagoons, or lakes may not become mining property.

CHILE

State mining reserves. Under article 4 of the Mining Code the State may re-
serve to itself all deposits of guano, petroleum, nitrates and analagous salts, and
iodine. Article 6 of Law No. 6482, published in the Diario Oficial of January 4,
1940 added other minerals: calcium carbonate, phosphates and potassium salts
found in public or government lands and municipally owned lands, provided that no
form of private ownership had been acquired in such deposits under previous laws.

Guano deposits are government property and may be exploited directly or un-
der private concessions. They are entrusted to the Ministry of Agriculture which
may grant concessions for not more than one year in the case of white guano. The
period for concessions for red guano is fixed by the Ministry of Agriculture in ac-
cordance with specific circumstances, but may not be more than five years. How-
ever, the period may be extended to ten years when processes approved by the
Ministry are used. Operators of fertilizer concessions who violate provisions of the
contracts are subject to immediate forfeiture of the concession as well as stipulated
fines.

At the present time these provisions are of little significance since all guano
deposits are now worked by the Sociedad Chilena de Fertilizantes Ltda., a company
organized by the Corporation for the Development of Production.

Calcium carbonate, phosphates and potassium salts are governed by article 6
of Law No. 6482. In most respects their treatment is the same as in the case of
guano deposits. Concessions, however, are not limited as to time, the periodbeing
specified in each individual contract.

Nitrates, analagous salts and iodine are governed by Law No. 5350. Article
1 established a State monopoly over the trade in and exportation of nitrates and
iodine, but the President of the Republic, under the provisions of the law, granted
concessions or leases for a period not exceeding 35 years to an entity known as the
Corporation for the Sale of Chilean Nitrates and Iodine. Exports are therefore in
the hands of this organization.

Producing enterprises, in order to participate in the sale of nitrates, must
adhere to the Corporation by public instrument recorded in the Commercial Register
of Valparaiso, the domicile of the Corporation. The Corporation purchases from the
producers and sells nitrates for their account, at home and abroad. Profits are
distributed on a priority basis; the first 25 percent goes to the Government, next
the common debts of the industry are paid, and the balance is divided among the
producing companies.

Three groups form the Corporation: a) Lautaro Nitrate Co. and the Anglo-
Chilean Nitrate Co. (the Guggenheim group), with a 60 percent interest; b) the
Compafifa Salitrera de Tarapaca y Antofagasta, with 30 percent; and c) the inde-
pendent small companies, holding a 10 percent interest.

3. Denouncement and Exploration of Mines

The right to prospect and excavate in search of mines on the property of
another may be exercised freely in open and uncultivated lands; to do so in other

MINING

lands requires the written permission of the surface owner, or of the current oc-
cupant or tenant. However, only the owner can grant such permission if a house
and its surroundings or land containing orchards or vineyards are concerned. If
the owner is the State or a municipality, application for a permit must be submit-
ted to the appropriate governor or alcalde. In the event of a refusal by the individ-
ual or official concerned, an appeal may be taken to the local court (Juez de Letras).

Notwithstanding the foregoing, if explorations are to be made which involve
investigation by methods requiring the use of machinery or instruments an exclusive
permit may be requested from the court.

If a discovery is made, the finder must report his findings to the appropriate
court in a declaration which should include a precise description of the place or
point where the discovery was made, the kind of mineral found and the form of the
deposit, the number of claims (pertenencias) applied for and the name to be given
to each, as well as the area stated in hectares that are desired in each claim. This
declaration is published and recorded in the register of the Conservator of Mines of
the department concerned.

Within a period of 300 days the applicant must construct a reference guidepost,
file a plan, and request a survey of the deposit in accordance with the terms of his
declaration. The survey is conducted by an official in the Department of Mines and
Petroleum, which is under the Ministry of Economy. The survey, as recorded by
the Conservator of Mines, constitutes the title to the claim and gives original legal
possession thereof.

The length of time of occupancy necessary to gain ownership by prescription
is two years for ordinary prescription and six for extraordinary prescription.

Ownership of a mine is protected by the payment of an annual fee (patente),
payable in advance to the local Treasury in March of each year. If this fee is not
paid within the period indicated the claim is put up at auction. To participate in
such an auction each bidder must submit a bond payable to the order of the court
in an amount equal to the unpaid fee, or deposit such amcant with the secretary of
the court prior to the auction. An auctioned claim passes to the new owner with
all encumbrances recorded thereon.

4. Taxes

Taxes on mining vary according to the type of operation. For-mining compa-
nies (sociedades mineras) in general the tax is 22. 5 percent; for corporations (so-
ciedades an6nimas) the rate is 19. 5 percent. Mining companies organized in Chile,
but which have their mining operations and processing plants outside the country,
are taxed 7. 5 percent.

5. Copper Mining

These rates do not apply to large-scale copper mining, the so-called grann
mineria" the chief distinction between this and smaller independent mining

CHILE

enterprises being that the latter do not refine their own ores but normally sell it to
private smelters or semi-governmental plants such as the Fundici6n Nacional de
Paipote.

Taxation of large-scale copper mining industry is now governed by Law No.
11,828 of May 5, 1955, replacing a number of other laws (Nos. 7160; 7200; 8758;
10,003; 10,255; 11,137; and 11,151). The law defines these enterprises of grann
minerfa" as those which produce "blister" by firing or electrolytic processes of
any kind, in quantities of not less than 25,000 metric tons per year in working and
processing ores from their own production or their branches or associates.

All enterprises coming within the scope of Law 11,828 will pay a single tax on
profits at the following rates: a fixed rate of 50 percent on the basic production and
a surtax of 25 percent which is reduced proportionally with an increase of produc-
tion above the basic figure, at the rate of one-eighth percent for each one percentof
increase until the increase is 50 percent. Whenever the increase is more than 50
percent of the basic figure, the surtax is reduced by three-eighths percent for each
one percent of increase until 100 percent is reached, above which only the fixed
rate of 50 percent is applied.

The tax must be paid in United States dollars, unless the Copper Department
authorizes its payment in some other currency.

The basic production figure shall be an amount not exceeding 95 percent of the
average production for each enterprise during the years 1949 to 1953 inclusive.
Whenever the production of these enterprises drops below 80 percent of the basic
figure, the tax is raised from 50 to 80 percent of the taxable income,exceptin cases
of force majeure approved by the Copper Department of the Central Bank.

Article 16 of Law 11,828 contains a provision entirely new in Chilean legisla-
tion, stating: "if due to circumstances deriving from the international market, the
companies are compelled to decrease their production, the reduction in Chile may
not be proportionally greater than the reduction in production by the same compa-
nies outside the country".

New enterprises undertaking large-scale copper mining that are established
in the future will pay solely a single tax of 50 percent (art. 2 of the law).

New investments made by the large copper companies may be amortized in a
special manner, not within the provisions of law, by an agreement with the President
of the Republic, if approved by the Copper Department.

Enterprises that produce electrolytic copper in new plants or by expansions
or modifications according to investment plans approved by the Copper Department
are authorized by article 4 to include as expenses, in addition to those authorized
by the Income Tax Law, $0. 01 US cy. per pound of copper produced. This provi-
sion is important in that it stimulates new investments in the production of electro-
lytic copper by allowing a reduction in net taxable income.

MINING

Another provision that may be regarded as a stimulus is article 6, which pro-
vides that the portion of copper production that is to be processed in Chile by the
producing companies themselves, in new plants and exclusively for export, may re-
duce the basic figure; and the proportion of taxable income corresponding to that
portion of production shall not be subject to the 25 percent surtax.

The producing companies shall have the same benefits in proportion to their
share in the capital of their subsidiaries and associates in Chile, and likewise,
whenever they are associated with Chilean manufacturers of copper already in ex-
istence but providing the processing is done in new plants. This applies only to cop-
per for export.

Articles 7, 8, and 9 of Law 11,828 impose on the producing companies the
obligation to reserve a supply of copper ingots for domestic industries producing
either for home consumption or for export. The sale of this copper is strictlyreg-
ulated and it may go only to those industries with available plants to produce semi-
manufactured copper goods, in accordance with requirements indicated in the reg-
ulations. The regulations are still to be issued, however.

New investments made in Chile by the producing companies, if applied tomin-
ing deposits other than those currently being operated, or to agricultural and live-
stock activities or other industries, are entitled to all benefits specified in D. F. L.
437 described elsewhere.

In all cases, the accounts for operations derived from new investments must
be kept separately for purposes of identification of the new capital and of the income
obtained therefrom.

Article 12 of the law provides that these companies may change into U. S. dol-
lars the amounts required to meet all costs and other expenses in Chilean currency.
With the authorization of the Copper Department they may exceptionally convert into
other currencies. This exchange must be sold to the Central Bank,whichis required
to purchase it at the free bank rate. Every six months, based on a report from the
Copper Department, the President of the Republic must fix the amounts that the com-
panies are to exchange according to the law.

The Copper Department (Departamento del Cobre). Article 14 of the law es-
tablished this agency, with juridical personality and domicile in Santiago, under the
Central Bank. It has the following functions:

1) To intervene in the international trade in copper so as to maintain or ex-
pand markets for Chilean copper, and to prevent or combat any action designed to
control or restrict her markets;

2) To advise the Government on all matters relating to the production and sale
of copper, in any form, within the country and abroad, and particularly in relation
to technical, social, economic, and financial conditions of domestic production, its
markets, uses, and processes;

3) To study such questions both at home and abroad;

CHILE

4) To supervise and establish regulations for the production of and trade in
copper in Chile, with reference to volume, possibilities for expansion, freightrates,
consumption, prices, sales, costs, and profits, as well as labor and health condi-
tions in the mines.

Producing companies coming within the scope of the law are required to fur-
nish any information covering these matters to the Copper Department.

The Department is administered by a Committee composed of the Minister of
Mines, who is the presiding official; three representatives of the President of the
Republic; two directors of the Central Bank; two representatives of the producing
companies; one representative of the workers (obreros) and one of the employees
(empleados) designated by their appropriate organizations. The term df office for
members is three years but they may be reappointed. One of the representatives
appointed by the President serves as Executive Vice President acting as legal
representative and administrative chief of the Department.

The Committee executes the contracts and conducts the business of the Cop-
per Department, particularly: a) specifying the rules by which the Departmentshall
supervise the production, transportation and marketing of copper; b) authorizing
exports of copper and the imports necessary to the operation of the producing com-
panies, and reporting its action to the National Foreign Trade Council; c) passing
upon contracts, prices, freight rates, insurance, and other features of sales and
shipments of copper, so as to obtain the best possible terms; d) directly contract-
ing sales of copper as representative of the producing companies; e) authorizing
copper purchases required by domestic industry and consumption by state agencies;
f) stimulating copper production and industries in the country; g) engaging the staff
required to fulfill its objectives.

Rulings by the Committee are compulsory on the enterprises concerned. The
expenses of the Department are financedbya commission on the gross selling price
of copper, amounting to 1/4 percent, allowable as a deduction for tax purposes.

Regulations governing the Committee are contained in Supreme Decree 63 of
the Ministry of Mines, of May 10, 1955.

Labor conditions. The Copper Department is authorized to require that up to
one percent of the gross profits of the large-scale enterprises shall be used for the
construction of housing for employees and workers and other improvements in the
mining camps.

The President of the Republic is authorized to permit deductions as expenses,
for tax purposes, funds spent by the companies in educational, social, health, and
housing works in their mines, provided such expenditures are not required by law
and that they are commenced within a period of five years after May 5, 1955. The
law also provides that the President of the Republic should issue a Statute for Cop-
per Workers, as labor regulations for the industry, but this has not been done up to
the present time. A commission is at work on the project.

MINING

Expenditure of tax revenues. Article 26 of Law 11,828 provides that an item
shall be set aside in the national budget for 1956 and thereafter for public works of
road construction and irrigation to be financed from the taxes obtained from the
large-scale mines. Of these taxes 5 percent are to be used for this purpose in1956,
10 percent in 1957, and progressively increased up to 30 percent in 1960 and there-
after.

Ten percent of the total revenues from copper taxes are to be used for the fol-
lowing purposes. Of this total, 75 percent is to be deposited in Chilean currency
in a special account in the Central Bank within 30 days after payment of the tax.
From this a sum amounting to 5 percent will be allotted to the Technical State Uni-
versity and 2 percent to Southern University (Universidad Austral). The balance
will be used solely by the Corporation for the Development of Production, three
fourths of which is to go to a development program for the provinces of Tarapaci,
Antofagasta, Atacama, and O'Higgins (the provinces in which the large mines are
located) and the remaining one fourth to go to the municipalities of these provinces
in proportion to the ordinary budgets.

Aside from the above, 4 percent of the total revenues are to be used, for a
period of twenty years beginning in 1955, for the reconstruction of the city of Cala-
ma, Atofagasta province, which was destroyed by an earthquake in 1953, for
drainage and irrigation projects in the Loa river and for agricultural projects in
that region, under the Irrigation Department of the Ministry of Public Works.

The remaining 25 percent of the 10 percent referred to above is to be deposit-
ed in the same currency as the tax was collected, in a special account in the Central
Bank, to be used solely by the National Smelters (Empresa Nacional de Fundiciones),
which the law has created, for its program of operations, expansion and development.

The Caja de Credito y Fomento Minero, a bank for mining interest and auto-
nomous agency of the Government, and the Sociedad Explotadora de Minas, a private
commercial mining company, have formed the Sociedad Fundici6n Nacional de Pai-
pote, Limitada, a limited liability company for the smelting of the copper ore of the
smaller mines. The company has been converted into an autonomous state enter-
prise, governed exclusively by the provisions of Law 11,828 and its statutes, under
the name of Empresa Nacional de Fundiciones. It is thus a government agency with
juridical personality, similar to the INACO (Instituto Nacional de Comercio) and
ENAP (Empresa Nacional de Petroleos).

6. Coal Mining

All matters pertaining to the exploration, denouncement, and organization of
mining property relating to coal deposits are subject to special regulations contained
in articles 205 et seq. of the Mining Code. The President of the Republic may re-
serve to the State specific carboniferous areas. He has made use of this authority
in Decree No. 1080 of June 24, 1936, setting aside for the State the coal deposits
situated in Arauco Bay (Bahia de Arauco).

Some of the special regulations in relation to coal deposits are the following:

CHILE

1) An application for a claim is submitted to the President of the Republic and
not to a Juez Letrado;

2) The President of the Republic gives special consideration to the financial
possibilities of the applicant in deciding whether to grant a concession;

3) A mining property (propiedad minera) as the term is used for deposits of
other minerals does not exist, as the President of the Republic merely grants a con-
cession;

4) The concession holder is required to exploit the deposit on a scale propor-
tionate to its importance, thus constituting an exceptional case of "protection by
amount of work involved" (amparo por el trabajo) and not by payment of a fee;

5) The concession expires:

a) If the obligation is not fulfilled of beginning operations or preliminary
work within the periods indicated in the concession;

b) Whenever, without justifiable reasons, as determined by the President
on the advice of the State Mining Service, operations are curtailed or suspended to
an extent that indicated non-compliance with the requirements of section 4) above.

7. Mining Companies

There are two types of mining companies:

1) De facto companies, defined in article 136 of the Mining Code as a company
formed by the fact that two or more persons record a mutual statement to the effect,
or by the fact that one or more persons register, under some other title, a portion
share in a claim (pertenencia) recorded in the name of a single person, by either
of which acts a mining company is formed, and by law becomes a juridical person.
Any business of such companies must be conducted by a board (junta) to which all
members are convoked by notices published twice, and in order to meet the board
must be attended by members representing at least 51 percent of the capital.

The capital is assumed to be divided into 100 shares which are distributed
among the members in proportion to their share in the mining property.

Such a company is managed by one or more persons appointed by the board,
which also specifies their powers and duties, remuneration and term of office. The
profits or proceeds are distributed among the members in proportion to the shares
held. The distribution may be in the form of ore, bullion, or money, as determined
by the members. If there is no agreement on this point, the distribution is to be
made in money.

The members contribute to the payment of expenses needed for the mainte-
nance and operation of the claim, in proportion to their shares.

PETROLEUM LEGISLATION

As already stated, article 4 of the Mining Code provides that the State shall
reserve to itself all deposits of guano and petroleum in liquid or gaseous state lo-
cated in lands of any form ol ownership.

Based on this provision, Law No. 9618 of June 19, 1950 created an entity
known as the National Petroleum Enterprise (Empresa Nacional de Petrl6eo, or
ENAP). This entity is governed by the provisions of this law and by its statutes.
The functions and rights pertaining to the State withrespectto exploration and ex-
ploitation of petroleum deposits, and the refining and sale of petroleum and its by-
products obtained therefrom, are exercised by this organization.

The assets of the National Petroleum Enterprise consist of investments made
by the Corporation for the Development of Production in petroleum exploration and
exploitation, in amounts appropriated annually in accordance with the budget of the
Corporation, as approved by the President of the Republic, as well as property ac-
quired under various titles. The profits and earnings of the Enterprise shall also
be used to increase its assets until the petroleum industry has been fully developed,
and thereafter will be added to the general revenues of the Nation.

The Enterprise is administered by a board of directors composed of the Vice
President of the Corporation for the Development of Production, as presiding offi-
cial, and five other directors, three of whom are appointed by the Development
Corporation, one by the National Mining Society and one by the ManufaturingDevel-
opment Company (Sociedad de Fomento Fabril). The two last-named are private
entities whose members are representatives of the mining and industrial activities.

The law states that all lands specified by the President of the Republic, on the
advice of the Ministry of Economy, shall be declared of "public utility" for expro-
priation when needed for any of the purposes of the National Petroleum Enterprise.
This includes lands for petroleum operations, refining, workers' camps, storage,
transportation by pipelines or by roads and ports. All such expropriations are with-
out prejudice to rights or easements established under the Mining Code for pur-
poses of prospecting, mining, properties, processing plants, etc.

COLOMBIA

MINING LEGISLATION

1. Basic Legislation

The fundamental legislation on mining is the Mining Code, which still pre-
serves the Spanish colonial tradition. It is based on the Mining Ordinance of New
Spain (Mexico) issued in 1783. Subsequently, Simon Bolivar issued a decree at
Quito in 1829 governing mining in Colombia, putting into effect certain parts of the
Mining Ordinance. The former "Sovereign State" of Antioquia, the territory of
which is basically a mining area, issued a Mining Code for that State, based on the
legislation cited. This Code took effect on January 1, 1868. It was subsequently
adopted for the entire Republic by Law 38 of 1887. On various occasions attempts
have been made to repeal this and replace it by other proposed codes, but without
success.

The most recent occasion was the enactment of Decree-Law No. 1779 of June
8, 1954 which repealed the Mining Code and issued a new one. But shortly after-
wards, Decree 2230 of 1954 declared that the older Code had not been repealed but
merely suspended. Thereafter Decree-Law No. 3682 of 1954 suspended the preced-
ing decrees and reestablished the old Mining Code which has continued to be applied
without break. The Code applies primarily to adjudicable mines.

Various laws and decrees apply to mines in the national reserve that are sub-
ject to contract. The moreimportantare: the Fiscal Code of 1912; Decree 805 of
1947; Decree 665 bis of 1951; Decree 2514 of 1952; Decree 331 of 1953; and Decree
3132 of 1957.

2. Ownership and Classification of Mines

By reason of eminent domain all mines located within the national territory
ultimately belong to the State. Anyone claiming a right to a mine must prove that
the State recognized such right or transferred ownership. In effect, the Colombian
State recognizes private ownership of mines through ownership of certain lands and
also may create private ownership by adjudication. There are thus two sources of
private ownership of mines.

Mines by accession. The State recognizes as private property mines located
in lands which were removed from State ownership before October 28, 1873, pro-
vided such lands were never returned to the fiscal domain by reversion, forfeiture,
annulment or any other.reason prescribed by law. The above date is taken as the
point of departure because it was then that certain chapters of the Fiscal Code of
1873 took effect in the national territory.

MINING

Although mines located in lands adjudicated before October 28, 1873 belong to
the owners of the land, this does not include mines of gold, silver, platinum, and
rock salt, which belong to the State regardless of when the lands in which they are
found were adjudicated.

Mines located in lands which were unowned public lands (baldias) as of Octo-
ber 28, 1873 therefore belong to the State in principle, unless the mine itself has
subsequently been adjudicated to a private person.

Mines which belong to the owner of the land by accession are' governed by the
regular provisions of the Civil Code governing lands, since the law merely states
that mines that are the property of the surface owner may be exploited by the latter
with no other requirement or encumbrance than compliance with provisions enacted
by the authorities for the protection of public health and safety (article 453, Mining
Code).

Such mines may be alienated, exploited, or improved separately from the land
if such is deemed advantageous by their owner. But if an owner alienates his lands
without stipulating a special reservation of the mines, the latter will be included in
the alienation. Such mines may be acquired or lost by prescription in the same
manner as the lands in which they are located.

Adjudicable mines. The State may create private ownership of certain of its
mines by adjudication. The features of this form of ownership are described below.

Mines not open to contract. The mines in the national reserve not open to con-
tract are a State monopoly and are administered either directly or through a dele-
gated administration. They include:

a. Rock salt mines. The principal salt mines are those at Zipaquiri and
Nemoc6n, administered at present by the Bank of the Republic. The State retains
exclusive ownership of these mines and contracts with private persons only for the
processing of brine to produce solid salt.

b. Emerald mines. At the present timt emerald mines are a State monopoly
and administered by the Bank of the Republic. Originally, following the 1829 decree
of Bolivar, they could be adjudicated to private ownership but the mines were made
a State monopoly in 1847. The monopoly was abolished by a law of 1870 and the
individual States were authorized to adjudicate them to private owners. The Consti-
tution of 1886 restored to the State all mines of precious stones not yet adjudicated;
then the Mining Code adopted in 1887 made them adjudicable. But Law 40 of 1905
restored a State monopoly over emeralds and this has remained in effect. Some
mines were acquired by private persons in the periods when this was possible. The
principal emerald mines in the monopoly are at Muzo, Coscuez, Tibor.

c. Marmato and Supia mines. The State also has a monopoly in the gold and
silver mines of Marmato and Supla. These mines are governed by special legisla-
tion under which the State retains ownership but may lease them for exploitation.

COLOMBIA

3. Adjudicable Mines

The mines of the State that are adjudicable are governed by the Mining Code.
Adjudication is a method of transferring ownership of State property. Hence, if the
State adjudicates a mine ownership is transferred to the recipient. Anyone who re-
ceives a mine by adjudication may freely dispose of it by sale, exchange, gift, or
succession. It may also be leased, a usufruct established therein, or it may be ex-
ploited directly or by a company organized for that purpose. It may be mortgaged
and its products may be pledged as collateral.

Today only a small number of mines are adjudicable. They include gold, sil-
ver, platinum, copper, and precious stones, but excepted from adjudication are al-
luvial deposits of precious metals in the beds or banks of navigable rivers within one
kilometer on either side of the normal channel; the gold and silver mines of Supra
and Marmato; and emerald and beryl mines.

Geological classification. The Mining Code divides adjudicable mines into
three groups: lode mines, such as veins of silver, gold and precious stones; al-
luvial mines in the beds or banks of rivers, also known as corridos (outcroppings);
sedimentary mines, such as copper mines in sedimentary rock or earth, although
this metal is usually found in veins. This classification serves as a basis for de-
termining the area of each adjudicable mine and the taxes to be imposed.

Who may acquire mines. Adjudicable mines may be acquired by nationals or
foreigners, directly or through their legal or legitimate representatives. But for-
eign governments may not acquire mines in Colombia.

Exploration. Any natural or juridical person, national or foreign, who may
acquire a mine in Colombia has the right to search for, discover, and excavate a
mine in either State-owned or private lands. However, they may not search for a
mine within the area of a town or within the patio, gardens, or yards of ruralhabita-
tions without permission of the owners. If rural property is fenced in, cultivated,
or used permanently by livestock, and in public lands occupied by settlers, mines
may not be explored without prior notice to the owner or occupant. Such persons
may not oppose the exploration but may demand compensation for damages. Explora-
tions may not be conducted within the boundaries of mines reserved by the State as
fiscal property, such as the monopolized mines mentioned above.

Notice and denouncement. Any person desiring to acquire an adjudicable mine
that he has discovered must duly notify the mayor of the municipality in which the
mine is located; a mine will be regarded as discovered only if such notice has been
given, with the date of discovery. The day and hour of notification will determine
the priority of rights.

Notification should include the place of the discovery, the class of mine, its
geological formation, and any other data necessary for proper identification. The
fee for notification is five pesos in stamps, for which a certified copy of the notice
is issued.

MINING

Within ninety business days thereafter a denouncement of the mine must be
submitted to the Governor, Intendente, or Special Commissary, through the Minis-
try of Finance. The denouncement, which is an administrative petition, should re-
quest adjudication of the mine, with details as to class of mine and minerals, wheth-
er it is an old or new discovery, the person or persons to whom adjudication is re-
quested, the rights to be granted to each recipient, the area desired (not in excess
of legal limits) and indication of the exact point where the mine was discovered. The
denouncement should be accompanied by a copy of the notification, a receiptfor pay-
ment of 50 centavos, and a tax stamp of five pesos and the necessary stampedpaper.

The denouncement is made through a registered attorney. If it meets legal
requirements it will be duly processed and posted in the municipality where the mine
is located. The posted notice is a summons to all parties interested in possession
of the mine; it should remain posted for twenty-one days and three announcements
are to be made on hearing days during the period. Thereafter the notice is removed
and if no opposition has been presented the interested party may request deliveryof
the mine within sixty days.

Area of mines

a. Lode mines may have a base which is 240 meters in width by 1,800 meters
in length, divided into three sections termed pertenencias, each of which would be
240 meters by 600 meters in dimensions, the three sections forming a single rec-
tangle with the bases indicated. An applicant may request a smaller area, but in no
case may a mine exceed three pertenencias.

b. Alluvial mines may be two kilometers in width by five kilometers in length
or they may be a square with sides of three kilometers. Smaller areas may be re-
quested but none larger.

c. Sedimentary mines are to be in the form of a square with sides of two kilo-
meters in length, but may be smaller.

d. Mines of precious stones are to have an area of one square kilometer but
may be smaller.

Areas of mines must be in a single body, rectangular in shape.

Survey and delivery. The survey and delivery are conducted by the same au-
thority. Prior thereto an expert surveyor is appointed and owners or applicants for
adjoining or neighboring mines are summoned. Delivery takes place in the presence
of the mayor and all interested parties. As the survey is being conducted the ap-
plicant may vary the direction of the sides provided there are no immediate owners
or applicants that will be prejudiced and the survey will not extend outside the
indicated area. Boundary marks are placed at each angle and at intermediate points.
Delivery is attested to in a formal act, but if there is opposition delivery is suspend-
ed and the case is decided by court action.

Abandoned mines. Deserted or abandoned mines are those for which taxes
were not paid in due time, those not put in operation within the required legal

COLOMBIA

period, or those for which only notification was made without continuing with adju-
dication proceedings in due time. Abandonment of a mine opens it to a new notifi-
cation.

Notification of an abandoned mine is done in the same way as newly discov-
ered mines and the denunciation is also done in the same manner but with the added
information that a previously discovered mine is concerned and with the name of the
former occupant if known. Denunciation of an abandoned mine is to be published in
the official gazette of the Department and shall take effect thirty days after suchpub-
lication. The remaining formalities are the same as for newly discovered mines.

Title to mines. Upon delivery of a mine, the official in charge returns the ap-
plication to the Governor's office and the claimant must apply for title within sixty
days after delivery. The following are necessary to obtain the title: a receipt from
the National Treasury for 4 pesos; a tax stamp to the value of 5 pesos and the neces-
sary stamped paper. The title will contain the principal papers of the application:
notice, denouncement, certificate of delivery, and the decree or resolution order-
ing issuance of title, with acknowledgment of payment of the required fees and taxes.
The date of the title is that of the notification.

After the title is issued, the original is delivered to the holder for registra-
tion in the appropriate district in which the municipality and mine are located. Reg-
istration must be made within ninety days after issuance of the title, but it maybe
registered later by payment of a surtax.

Titles are recorded in book No. 1 for a fee of 15 pesos and must also be
inscribed in another register (libro de matrlcula) for a fee of 5 pesos. After such
registration a title may be recorded by a notary from whom a copy or copies may
be issued to the recipient. The notarial record (protocolizaci6n) avoids loss of the
title, otherwise difficult to replace.

The recipient of the mine thereby becomes titular owner and the mine is
termed a "titled mine" (mina titulada). The title holder may exercise any civil or
commercial transaction to which real property is subject: sale, exchange, gift,
contribution as capital or a civil or commercial company, testamentary bequest,
mortgage, antichresis, lease, pledging of mine products, etc.

The mine title protects adjudicable minerals; for example, if title is issued
for a gold mine and silver, platinum, copper, and adjudicable precious stones are
also found there, the title holder has the right to all these minerals. Ownership of
a mine includes the entire area and depth following the vertical planes of its bound-
aries, but not including the land portion enclosed therein nor minerals which are
not adjudicable.

Ownership of a mine adjudicated by the State is subject to two conditions: pay-
ment of an annual tax known as impuesto de estaca and formal operation of the mine
within legal limits.

Obligation to conduct operations. Decree 223 of 1932 reestablished the obliga-
tion of beginning operation of an adjudicated mine within five years from the date of
issuance of title. If operations are not begun within this period the holder loses

MINING

ownership of the mine and it reverts to property of the State open to adjudication to
another party. And if after operations have been started they are suspended andnot
renewed within three years, the holder likewise loses ownership of the mine.

Mining taxes. According to their area and classification mines are subjectto
the aforementioned tax as a conservation tax. Each pertenencia or fraction thereof
must pay an annual tax of 5 pesos in the case of lode mines; a tax of 20 pesos in the
case of alluvial mines, while sedimentary mines pay a tax of one half the taxonlode
mines (2 pesos 50). Mines of precious stones pay a tax according to geological for-
mation (lode or alluvial).

This tax must be paid not later than March 31 following the year for which it
was due. If the tax is not paid within this period, the mine reverts to the State ipso
jure, without the necessity of court suit or administrative action of any kind. How-
ever, a mine owner may pay delinquent taxes with interest of 1 1/2 percent monthly
and thereby recover his property, if it has not been otherwise denounced before such
payment is made. If recovery is so attempted but another party has filed notice and
denouncement, the former owner may claim force majeure or act of God as grounds
for delay in payment of the tax. Recovery in such cases must be determinedby court
action.

Alluvial washings. Alluvial mines of precious metals are limited in their
ownership by the hand industry of washing or panning, popularly known as "maza-
morreo" or "barequeo", in which individuals without capital and without machinery,
using merely physical effort, wash the sands in river beds and streams, regardless
of whether the mines have or have not been adjudicated. The only restriction on such
activities is that this hand washing and panning may not be conducted within two hun-
dred meters of the sites of dredges and machines in mining operations.

Administrative protection. Article 9 of Decree 223 of 1932 provides that no
person may file a denouncement of a mine on which taxes are currently being paid
and that Governors shall reject such denouncements whenever it is shown that
taxes were paid.

The right to administrative protection (amparo) may be invoked before a Gov-
ernor or Intendente, but the party so doing must submit the following proofs: title
to the mine in question, receipt for payment of taxes, and identification of the mine.

If administrative protective remedies are not successful the interested party
may resort to court action.

Court action. Opposition by court action is a means of protection granted by
law to persons who have filed notice or who have been adjudicated a mine by title,
against the claims of others who file notice in the belief they have the right to adju-
dication, in whole or in part, of the same minerals. Opposition suits are heardby
the courts in the appropriate circuit.

Opposition by court action may be interposed at various stages in proceedings:
a) from the time a denouncement is filed until removal of the posted notice, as a
defense of ownership of the mine or a better right to adjudication; b) at the time of
delivery of the mine, by the owners or claimants by denouncement of adjacent or

COLOMBIA

neighboring mines, if they believe that a part of their mining property is included
within the boundaries of the new mine; anyone claiming to have a better right to
adjudication may also enter their opposition at this time; c) the last occupants
\should be summoned after removal of the posted notice and before delivery of the
mine, and may enter opposition to delivery within twenty days plus allowance for
distance, if the summons was personal.

If an opposition is entered, the case is submitted to the appropriate circuit
judge for decision with respect to the rights claimed by each party Opposition may
be by ordinary or boundary suit, according to circumstances.

4. Mines Open to Contract

Legislation. Mines open to contract are governed by the Fiscal Code of 1873;
by article 202 of the Constitution; the Fiscal Code of 1912; by Law 85 of 1945; Law
81 of 1946; Decree No. 805 of 1947 and Decree 3132 of 1957.

In accordance with the provisions cited, the Colombian State has established
reserves of certain minerals which are not adjudicable. These minerals may be
exploited by private persons under contracts made with the Government. The Gov-
ernment does not transfer ownership of a mine to the contracting party, but merely
the right to exploit it for a limited period by payment of a royalty. Upon expiration
of the contract or if the contract is forfeited, the entire enterprise reverts to the
State without compensation of any kind.

Types of contracts. Contracts may cover the following mines:

a. Previous metals in the national reserve. These are metals found in the
beds or along the banks of navigable rivers within an area of one kilometer from
either side of the normal channel of the river. The contract of exploitation may
cover the riverbed only or the riverbed and the area on one or both banks of the
river.

The maximum area to be covered in a concession is 15 kilometers in length
by the width of the riverbed and the portion of the banks included in the contract.
No person may have more than five concession contracts for previous metals. The
contract may include all metals combined together or otherwise associated in the
same area. The previous metals considered are gold, silver, and platinum in al-
luvial formations.

b. Non-previous metals and non-metallic substances. Proposals for these
contracts should be submitted to the Ministry of Mines and Petroleum, indicating
the person or entity making application, the municipality in which the deposit is
located, the boundaries of the area, and a statement as to whether the deposit is
located in public land or in land that was adjudicated after October 28, 1873. The
application should be accompanied by a sketch in the scale of one to 10,000 signed
by a registered surveyor, with notations as to length and directions of the polygon,
waters located therein, and any other topographical features.

MINING

A separate contract must be made for each substance, to cover the explora-
tion and exploitation of minerals such as iron, lead, tin, molybdenum, etc., and
non-metallic substances such as mica, sulphur, marble, lime, etc. provided they
are located in public lands or in lands that were public as of October 28, 1873.

Proposals are tobe submitted to the Ministry of Mines and Petroleumwith the
same information as indicated above with respect to previous metals, and accompa-
nied by a surveyor's sketch as mentioned.

The surface area that may be covered by these contracts may not exceed
5, 000 hectares, with a ratio of one to three between length and width in the case of
coal, iron, sulphur, etc. Contracts for deposits of other substances suchas guano
and other fertilizers may cover a surface area up to 1,000 hectares, in contiguous
or separate plots.

Procedure. The proposal is examined by the Ministry and if corrections are
to be made a period of thirty days is allowed. If more than one proposal is submit-
ted covering the same area, the Ministry may select one for further negotiation,
taking into account the studies made by the applicant and his technical capacity. Un-
der equal conditions, the application first submitted will receive priority. Before
signing the contract, the applicant must submit evidence of his financial capacity to
carry out the exploitation.

If a proposal is accepted, an extract thereof is published in the Diario Oficial,
in a Bogota newspaper, and in the official Department gazette where the mining area
is located.

Within three months following completion of these formalities, any person
claiming injury by the proposed contract may file opposition, and if this is found to
be in order it is submitted to the competent Superior Court for decision as to owner-
ship of the minerals concerned.

To be valid, a contract requires the approval of the President of the Republic,
on recommendation of the Council of Ministers and subsequent statement of the
Council of State as to its legality. It is then set forth in a public instrument and pub-
lished in the Diario Oficial.

Operations. A concession holder is allowed a period of two years, whichmay
be extended an additional six months, in which to conduct technical exploration of the
area covered. After this period, the work of installation for exploitation must be
started. One year is allowed for installation after which the period of exploitation
is thirty years. In the case of precious metals this period may be extended for ten
years, on the basis of new conditions established by the Government.

One and the same person may acquire, directly or through transfer, two or
more contiguous concessions for the same mineral and may explore and exploitthem
jointly. In the case of precious metals such joint operations are limited to the
maximum of five concessions allowed by law.

COLOMBIA

Royalties. The royalty or share of the Government in the exploitation of pre-
cious metals is payable in kind or in its equivalent in money, based on the total
gross production of a deposit, according to the yield per cubic meter, on the fol-
lowing scale:

Milligrams of gold per c. m.

Up to 150 2%
From 151 to 200 3%
201 to 300 4%
301 to 400 5%
401 to 500 7%
501 to 600 9%
601 to 700 12%
701 to 800 16%
Over 800 20%

In the exploitation of non-precious metals or of non-metallic substances the
Government royalty is 5 percent of the gross production. This is defined as the
material extracted and made ready for later processing for commercial use. The
share of the Government is payable at the end of each quarter, in money or in kind.

In accordance with Decree No. 2514 of 1952, the State temporarily is not col-
lecting a royalty on certain non-precious metals and other substances.

Legal requirements. All mining contracts are governed by Colombian laws
even if the company has its main office in a foreign country. In the latter case,
the company must organize and domicile an office or branch in Bogota, which is to
be considered Colombian with respect to all matters relating to the contract.

A concession holder may transfer his contracts to any natural or juridical
person, with the prior authorization of the Government.

As a guarantee of compliance with obligations, a concession holdermust post
a bond amounting to 2,000 pesos in the case of precious metals and 1,000 pesos for
non-precious metals and other substances. A bond may be raised to as much as
10,000 pesos if the annual production of operations renders this necessary.

Any dispute that cannot be settled amicably is to be submitted to arbitration
by experts.

A concession holder may not hinder the navigation of rivers nor deviate
waters wholly or in part from their channel to the detriment of such navigation.
Likewise, a concession holder may not impede washing and panning by individuals,
known as mazamorreo, on their properties.

If a concession is located on uncultivated public lands, they may be used by
the holder in the operations of his enterprise; this also includes use of waters,
stone, timber, etc.

Accounts must be kept in the Spanish language and in Colombian currency.

MINING

Renunciation. At any time during the period of exploration a concession hold-
er may renounce his contract by showing that he has not found minerals in a profit-
able commercial quantity. The contract may also be renounced during the periods
of installation and exploitation, wholly or in part, if it is shown that obligations
have been complied with.

In the event of a justifiable renunciation, the machinery and other operational
equipment may be withdrawn, but if twenty years of the period of exploitation have
elapsed such machinery and equipment shall revert to the State.

Fines and forfeiture. In case of non-compliance with obligations, the Minis-
try may impose a fine of 1,000 pesos, without prejudice to the right to declare the
contract forfeited, in lieu of such fine.

Grounds for forfeiture include: death of the contracting party or dissolution
of the company holding the concession; financial incapacity of the concessionholder;
bankruptcy; failure to commence work of exploitation within the periods indicated;
failure to pay royalty; transfer of the property without prior permission of the Gov-
ernment; non-compliance with requirements as to posting bond; refusal to accept
decisions of arbitration experts.

Before a declaration of forfeiture, the Government must notify the concession
holder of the reasons, and a period of ninety days is allowed for correction of de-
fects.

Reversion. Upon expiration of a contract, a declaration of forfeiture, or re-
nunciation by the concession holder after twenty years of exploitation, the conces-
sion reverts to the State. The Government may thereupon take immediate posses-
sion of all property and equipment of the enterprise.

5. Exploitation Permits

In accordance with Decree-law 2514 of 1952, mines and deposits of coal, iron,
sulphur, etc., and deposits of guano and other fertilizers, in the national reserve,
may also be exploited under permits granted by the Ministry of Mines and Petrole-
um for a period of five years, extendable for a like period. The area of the land
that may be covered by a permit may not exceed 250 hectares, in rectangular form.
Every permit covers all minerals found within the area concerned, with the excep-
tion of radioactive minerals, helium, and rare gases, petroleum, emeralds and
beryls, rock salt, and precious metals. One person is entitled to not more than two
permits at the same time.

The application for a permit should be accompanied by a sketch in the scale of
1 to 5,000 showing the topographical features of the area. This application is pub-
lished in the Diario Oficial and the official gazette of the Department in which the
deposit is located, and is also announced by notices posted in the local town hall.

From the date of submitting the application up to one month after completion
of the formalities, any person claiming injury thereby may enter an opposition.

COLOMBIA

The beneficiary of a permit must commence exploitation operations within six
months following the date of publication of the application on which the permit was
based. If more than one application is submitted covering the same area, the Gov-
ernment will give priority to the applicant who has begun operations, the one who
submits the best technical studies, or to the first applicant in point of time.

Permits will not be granted covering areas included in a concession, inforest
reserves, on lands devoted to agriculture or stock raising, if the exploitation en-
dangers the water supply of a town or village, or if the area contains minerals the
exploitation of which is reserved to the Government.

Exploitation permits do not require the posting of bond, no royalty is collected,
and the property does not revert to the State. Capital invested in mines of lead, cop-
per, zinc, bauxite, sulphur, and tin is not subject to the tax on capital.

6. Radioactive Substances

Based on provisions of article 45 of Law 120 of 1919; Decree-law 365 bis of
February 15, 1951; and Decree-law 331 of February 17, 1953, deposits of uranium,
thorium, radium, and other natural substances whose disintegration is the source
of atomic energy are reserved to the State. These deposits are to be exploited di-
rectly by the State or under contracts made in accordance with the terms of the de-
crees cited. Their exploitation and processing is declared to be of public utility.

Any natural or juridical person may engage in undertakings to discover and
denounce such deposits and to submit proposals for a contract for their exploration
or exploitation. The preliminary exploration of such substances is unrestricted in
the country and may consist of studies and observations leading to their discovery,
save for certain legal exceptions.

The terms governing technical exploration and exploitation of these substances
may be contained in a single contract. Areas which have been allotted by adjudica-
tion or concessions for other minerals are excluded from such a contract. In the ex-
ploitation of these substances the State shall have a share not to exceed 15 percent
of the gross proceeds of their sale. No adjudication of a mine may be made in an
area in which these deposits are found.

7. Mining Companies

For the exploitation of any minerals a company may be formed in accordance
with the provisions of the Civil Code, the Commercial Code, or the Mining Code it-
self; that is, the company may be a general partnership, a limited partnership, a
corporation, or a limited liability company. The Mining Code specifically provides
for an "ordinary mining company", which is normally organized for the exploitation
of an adjudicated mine but which may also be organized to exploit a concession grant-
ed by the Government.

In the organization of an "ordinary mining company" it is not necessary that
the partners be the owners of the mine, as such ownership may be in hands of any

MINING

partner, private third parties, or the State itself. Ownership of the mine is not a
factor in the formation of the company but merely confers the right to exploit it.

An ordinary mining company is formed by a consensual contract and hence
need not be set forth in a public instrument. From the time that two or more per-
sons agree to operate a mine they must at least appoint a president, director, or
manager of the company which thereby becomes organized. The president repre-
sents the company judicially and extrajudicially.

Formal organization of the company only confers the right to exploit a mine.
If the partners decide to begin operations, they must agree upon a quota or contri-
bution to be made by each partner for undertaking a partial exploitation of the mine.
When this is completed, the quota or contribution is returned to each partner, to-
gether with any profits obtained, which they may again periodically invest in the
operations.

This form of company is not dissolved by the death of a partner, but continues
with his heirs.

Partners lose their rights in the company by failure to pay a quota or contribu-
tion agreed upon.

A right of redemption exists by which the company or its partners have an op-
tion on the purchase of shares which one or more partners may wish to sell.

The domicile of the company is that decided upon by the partners or, in de-
fault of such stipulation, it is the place where the mine is located.

Such a company is terminated: by expiration of the period for which it was
organized; by exhaustion of the minerals concerned; by division of the mine, at the
request of one of the partners; by abandonment of the mine; if one partner obtains
all the rights in the mine; any other cases prescribed in regulations.

S75

PETROLEUM LEGISLATION

1. Basic Legislation

The basic laws in force governing petroleum are: Law No. 37 of 1931, as
amended by Law No. 160 of 1936 and Law No. 18 of 1952. These three laws have in
turn been amended by extraordinary decrees, Decree No. 2140 of 1956; and De-
cree No. 3050 of 1956.

Law No. 18 of 1952 authorized the National Government to codify the legal
rules applicable to petroleum, with any.necessary amendments, and this was ac-
complished by the enactment of Executive Decree No. 1056 of April 20, 1953, as
the Petroleum Code, comprising 231 articles. The articles cited in the ensuing
text are those of the Petroleum Code, except where reference is made to some sub-
sequent legal provision that has amended the Code.

2. General Principles

According to the definition in article 1 of the Petroleum Code its provisions
apply to any natural mixtures of hydrocarbons found in the earth, regardless of
their physical state, and which compose, accompany, or are derived from crude
petroleum, and for purposes of this law all such mixtures are termed petroleum.

Under article 3 the Nation reserves to itself helium and other rare gases
found in deposits in its ownership. It may exploit them directly or through contract.
If during the exploration or exploitation of a concession, wells containing suchgases
are encountered, the Government may take over such wells with due compensation
for drilling costs plus 10 percent additional. The Government may also install at
its own expense the necessary equipment for its operations, without interference
with those of the concession.

S' Article 4 declares the exploration, exploitation, refining, transport and dis-
Stribution of petroleum to be of public utility. Hence, the Ministry, upon petitionof
a legitimately interested party, may decree any expropriations necessary for the
operation and development of the industry.

According to article 5, the Tights of private individuals to petroleum found in
private property are recognized and respected in accordance with the Constitution,
and the State does not intervene in any way to disturb such rights.

Article 7 requires that persons engaged in the petroleumindustry mustfurnish
the usual scientific, technical, economic and statistical data to the Government as in
the case of other mining activities, and provides for similar inspection.

PETROLEUM

It also provides that geological data concerning an oil-bearing structure need
be supplied only when actual drilling operations have begun.

Article 8 relates to employment of Colombian nationals in petroleum compa-
nies. Preference is to be given not only to Colombian workers but also to higher
employees who should work inder the same conditions and at the same wages as
foreigners in the same category, providing their capacities are not inferior. Each
contract determines the minimum percentage of nationals that must be employed.

Article 9 provides that chapters XII, XIII and XIV of the Mining Code, relat-
ing to easements, indemnities, compensation, and water supply apply equally to the
petroleum industry.

In addition, the petroleum industry has the right to establish easements for
pipelines and may obtain sufficient ground for pumping stations and other installa-
tions needed for operation of a pipe-line and the erection of docks, loading equip-
ment and submaiine piping, all in accordance with the formalities set forth in ar-
ticle 37.

Article 10 provides, as does the Mining Code in the case of mines, that con-
tracts are governed by Colombian laws and are subject to the jurisdictionof Colom- 8-y
bian courts, and as provided by article 11, all controversies not settled by arbitra-
tion of experts shall be finally decided by the Supreme Court.

Companies which maintain their headquarters in some foreign country and
wish to become established in Colombia and enter into petroleum contracts with the
Government or with private individuals, must organize an office or branch with
domicile in Bogota and fulfill the requirements of article 470 of the Commercial
Code, and is to be regarded as Colombian for both national and international pur-
poses in regard to its contracts, property, rights and securities.

Article 12 requires that a petroleum operator must store for a period of up
to four months the oil due the Government as tax or royalty, in special tanks or
mixed in common tanks with its own oil.

According to article 13 any person in Colombia engaged in the exploration and
exploitation of petroleum under ownership of the Government must, at the time of
signing a contract, deposit with the Bank of the Republic, in money or in securities,
as a guaranty of compliance with its obligations, an amount equal to one peso for
each hectare included in the contract, but not less than 25,000 pesos minimum.
When the period of exploration is completed the amount may be reduced to an a-
mount corresponding to the number of hectares retained, but still not less than the
25,000 pesos.

In contracts for pipe-lines, the Government shall require a bond of 50 pesos
for each kilometer of main line, payable in the same manner.

Interest on securities deposited belongs to the contracting party, as in other
mining activities and is subject to similar regulations.

COLOMBIA

Under article 16, the exploration and exploitation of petroleum, the petroleum
obtained, its derivatives, and transportation, machinery and other equipmentneeded
for its preparation or for the construction and maintenance of pipe-lines and refin-
eries are exempt from all direct or indirect departmental or municipal taxes and the
"river" tax (impuesto fluvial).

Crude petroleum and its derivatives obtained from exploitation as established
under this law, are exempt from the export tax during the first thirty years of oper-
ation. Crude petroleum is also exempt for the same period from any special tax
imposed exclusively on this product.

According to article 19, surface exploration may befreelyundertaken through-
out the Republic in searching for oil in national property, but in case of exploration
on private property the owner must be given notice. He cannot object but may de-
mand payment for damages incurred. It is to be understood that such exploration
gives rise to no other right than the preference granted to a first applicant.

3. Concessions

According to article 21, any natural or juridical person, of demonstrated fi-
nancial capacity, may submit a proposal and make a contractor explorationby drill-
ing and the exploitation of petroleum on national property. If several persons pres-
ent proposals for the same area, the Government will select one from among those
showing adequate financial capacity,in the following order:

1) The first applicant to show that surface explorations was undertaken;

2) The owner of the surface land;

3) The person engaged in operations that are nearest the area applied for;

4) The person who applies for the largest area, other conditions being equal;

According to Decree No. 1262 of January 1, 1956, article 21 of the Code does
not apply if a piece of land is abandoned by the applicant or the applicant withdraws
or fails to sign the contract with the Government in due time. In such cases, the
Government may make a contract for exploration and exploitation without reference
to the above priorities.

Article 22 determines the size and other features of concessions. Under its
terms, an applicant meeting the conditions imposed by law and regulations may sign
a contract for exploration and exploitation of not less than 5, 000 nor more than
50,000 hectares except in case of a tract in which the area does not reach 5,000
hectares. A contract must cover a single continuous area, in such geometric form
that its greatest length does not exceed two and a half times its average width. But
if the land has natural boundaries, in whole or inpart, the unmistakable boundaries
may be used to define the area of the concession even if the resulting shape does
not conform to the aforementioned geometric figure. Any applicant who fails to sign
a contract within one month from the date on which he was summoned by the Minis-
try to sign forfeits his right of priority to the next applicant in order, if there is

PETROLEUM

one, and if not the land is declared open for contract (article 3, Decree No. 3050
of 1956).

Any natural or juridical person of demonstrated financial capacity may acquire
by transfer the rights deriving from another contract or contracts of exploration or
exploitation signed by the Government with a different person. The Governmentmay
approve or disapprove a transfer without stating the reasons for its action. But no
concession may be granted or transfer authorized in-any case, even through an in-
termediary, to a foreign government or an agency thereof. Concession holders
may make partial transfers of their contracts or rights, with the approval of the
Government and in accordance with requirements set forth in the regulatorydecree.
In such cases, the tranferor and tranferee shall be jointly and severally liable to
the Government for the obligations under the contract.

However, the Government may make contracts for exploration and exploitation
of petroleum in unreserved territory located east of the Cordillera Oriental or in
the Comisarfa of Putumayo or the Interidencia of Amazonas up to 200, 000 hectares
for each concession.

A concession holder who has renounced or abandoned a concession may not
again apply for a concession, either in his own behalf or through an intermediary,
within the two years following acceptance of the renunciation or a declaration of for-
feiture. The lands that were renounced become immediately open to a contract with
persons other than the previous concession holder. This rule was amended by De-
cree No. 1262 of 1956, as cited, since if the land is abandoned by the applicant or
the concession is renounced, the Government may seize it and contract freely
for its use.

At the end of the second year of a contract of exploration and thereafter dur-
ing its life, and after due notice to the Government, any contract holder may turn
back tracts of not less than 5,000 hectares each.

Article 23, provides that the exploration and exploitation of a given area shall
be covered by a single contract.

Exploration is defined as all surface geological work and drilling undertaken
to ascertain if the land under concession contains petroleum in commercial
quantities.

It is divided into three phases: the initial period of five years (Decree 3419
of 1950) beginning with the signing of the contract; ordinary extensions of years and
extraordinary extensions for an additional three years.

The Government grants ordinary and extraordinary extensions from year to
year, if the contracting party has met the requirements specified in this law and its
regulations and presents evidence that the time spent in exploration has been insuf-
ficient to accomplish its purpose.

The Government shall stipulate that at least six months before expiration of
the initial period a concessionaire must install and keep in operation at least one
full drilling outfit.

COLOMBIA

To obtain the extensions offered a concessionaire must present for approval a
program of activities to be undertaken during such extension, which is to include the
drilling of at least two wells. It must also be shown that the previous program was
carried out.

If at the end of the sixth year oil has not been found in commercial quantities,
the Government will grant an extraordinary extension year by year, up to three, pro-
viding all obligations have been met, and advance annual payment is made of a sur-
face canon (or tax), according to the schedule of rates given below.

Upon termination of the period of exploration the concession holder mustbegin
commercial exploitation under provisions of the law. The period for exploitation is
30 years counting from date of final expiration of the exploration period, including
extension if any, although exploitation may be started prior thereto.

The period of exploitation may be extended for ten years more, where so re-
quested by the concessionaire, if he agrees to pay the royalties and taxes imposed
by law after expiration of a thirty-year period and also binds himself to complywith
legal provisions governing an extension period.

Article 24. In concessions granted in the regions mentioned in article 17, the
initial period for exploration is five years, ordinary and extraordinary extensions
three years each, with the same requirements as for other zones, except that a
concessionaire is required to drill only one well each year.

Article 25. If a concessionaire loses his rights to exploration due to noncom-
pliance with obligations, the rights to exploitation are also lost.

Article 26 requires that a concession holder shall pay annually in advance,
during the period of exploration, a surface canon, as follows: a) On lands situated
east and southeast of the crest of the Cordillera Oriental, 10 centavos per hectare
during the first and second year of the contract; 20 centavos for the third year; 30
centavos for the fourth year; 40 centavos for the fifth year; and 50 centavos for the
sixth and subsequent years up to the expiration of the exploration period; b) On
lands located elsewhere in the national territory:

I. Initial period of exploration -- 20 centavos per hectare during the first
year of the contract; 60 centavos for the second year; 1. 00 peso for the third year;
1. 40 for the fourth year; and 1. 80 for the fifth year. These surface canones are
reduced to one half the respective amount during such time as at least one complete
drilling crew is at work within the boundaries of the concession.

II. Extensions -- 1. 20 pesos for the sixth year the contract is in effect; 1. 50
for the seventh year; 2. 00 pesos for the eighth year; 2. 50 pesos for the ninth year;
and 3. 00 pesos per hectare during the remainder of the period of exploration.

During the period of exploitation, the annual surface canon, for all contracts,
shall be the equivalent of one half the amount corresponding to the year previous to
the one in which exploitation was begun (Decree 5419 of 1950).

PETROLEUM

Under article 26, the surface land included within the boundaries of a contract
is governed by the laws on public lands, insofar as they do not disturb easements
established in behalf of the petroleum industry, as provided in article 7 of the law.
A concessionaire must compensate farmers or settlers for land occupied by them
prior to signing the contract or opening wells, as provided in the Mining Code. If
they are completely occupied, article 4 of the Code is applicable.

In all cases, the Government and concessionaire, in accordance with the needs
of the industry, shall determine what area cannot be occupied withoutpermisson of
the latter but in any case land within a radius of 500 meters of wells or installations
may not be occupied without permission of the concessionaire.

The surface tax or canon is collected even though during the exploration peri-
od the Government may allot publicly owned surface areas included within aconces-
sion on which the tax is based.

No holder of a concession for exploitation, according to article 27, may limit
the petroleum production of an enterprise to less than one fourth of maximum capac- "
ity, except by permission of the Government, and such permit may not exceed one
year. In figuring maximum production, those wells which have never been utilized
are not counted.

If production is restricted to less than one-fourth capacity without such per-
mission, the Government may collect its royalties on the basis of the one fourth
specified. In case of disagreement over determining maximum production capacity,
the question is to be decided by experts under the procedure outlined in article 11.

The size of the minimum annual investment that must be made in a concession r
is fixed in the regulations of this decree.

Article 29 states that during the first three years of a contract (five years in
the eastern regions), the area under contract must be suitably marked out and amap
presented to the Ministry in accordance with regulations.

Article 28 provides that at the end of each year the Ministry should receive a
geological map and transverse profile of the section explored or exploited, with ex-
planatory notes, and a report on the work accomplished,all in accordance with regu-
lations.

According to articles 23 and 24, work of exploitation may be commenced at
any time during the period of exploration, giving due notice to the Government ac-
companied by plans, maps and descriptive notes concerning the area under exploitation.

Article 31 provides that if an oil-bearing structure is found to embrace two
or more areas belonging to different interests, and this fact gives rise to disputes "
between them, the Government may require that they inaugurate a cooperative plan
for exploitation, under regulations of the Government. This is compulsory not only
for concessions on public lands but on private properties as well;

Article 32 provides that at any time within the period of exploration, the con-
tracting party may renounce the contract and return the lands heldunder concession,

COLOMBIA

if it is proved to the Ministry of Mines and Petroleum that the results of geological,
geophysical, seismographic or other studies, carried out under modern technical
procedure, show that exploration by drilling, or a continuation thereof, is not justi-
fied. The Ministry shall render a decision on the renunciation within sixty days
after it was submitted. If no action is taken within that time, the renunciation shall
be regarded as accepted, for all legal purposes (Decree 10 of 1950).

Contracts made or perfected after November 27, 1950, may be renounced
without the necessity of the preceding formalities, provided such renunciation is
presented within the first three years of the initial period of exploration (Decree
3419 of 1950).

Under article 32 the contract maybe renounced at any time during exploitation
if all obligations have been met, and the Government then has complete freedom to
make a new contract covering the same area.

If no oil is found during the exploration period and its extensions orduring the
first twenty years of exploitation, all machinery and equipment may be removed if
the contract is terminated. Bond is also returned. The Nationhas certainpurchase
rights.

Under article 33, if a contract terminates for any other reason than the above,
producing wells in perfect state of production and all building and other real prop-
erty in good condition, as well as all easements and expropriations revert to the
Nation without compensation.

Movable property must be sold to the Government if it so desires, at an ap-
praised value, within 90 days following termination of the contract.

Disputes over what is real property and what movable are determined by ex
perts (as provided in article 11) in accordance with Civil Law.

Article 34, deals in some detail with objections presented to proposed con-
tracts, but this article was amended by Decree 3050, mentioned elsewhere in this
chapter.

Article 35 provides that any natural or juridical person intending to undertake
exploration by drilling on presumed private property or to exploit such petroleum,
must in either case inform the Ministry for whom such operations are to be under-
taken, the area and boundaries included and the starting date. Notice must be ac-
companied by proofs of the right to extract petroleum and a topographical map of
the area. Upon receipt of such notice, the Ministry must pass upon the case within
30 days, and refer all the documents to the Attorney General for his opinion. Fines
are imposed for failure to comply with these requirements.

According to article 36 if the deed and accompanying documents are in order,
the formality of giving notice is regarded as complied with and operations may be-
gin. Permission to this effect must be recorded. It is granted only if the following
proof were given:

PETROLEUM

a) A deed issued by the State prior to October 28, 1873, or public docu-
ments of official origin attesting thereto;

b) A deed of ownership by the person giving notice and certificate of the
Registrar of Public Instruments;

c) A precise description of the property, of which, if deemed necessary,
the Ministry may require verification at the cost of the applicant.

Whenever the Ministry of Mines and Petroleum, from the documents accompa-
nying the notice referred to in Chapter V of the Petroleum Code or from other in-
formation that it may obtain, finds that the petroleum concernedbelongs to the State,
it shall transmit the documentation to the General Business Section of the Supreme
Court of Justice in order that this body, under procedure set forth in the Judicial
Code for ordinary cases of larger amount, shall decide without right of appeal, and
giving priority to such cases, whether the petroleum in the land in question belongs
to the State or a private owner. During this time the proposed exploration or ex-
ploitation may not be undertaken. The notice shall take the place of the filing of a
legal claim. If the decision is favorable to the Nation, the interested private indi-
vidual may not undertake exploration; if the decision is otherwise, he may do so.

Legal actions based on ordinary law in relation to lands referred to in deci-
sions rendered by the Ministry may be started only during the two years following
the date of registration in the book of record dealt with in article 37.

Actions brought as a result of decisions rendered by the Court in a brief or
summary suit, prior to or since the enactment of Decree No. 10 of 1950, shall con-
tinue to be governed by articles 5 and 6 of Law 160 of 1936, but ordinary suits shall
be heard only in sole instance by the General Business Section of theSupreme Court
of Justice

Ordinary suits already begun shall be continued before the corresponding
courts.

Objections and notices which were pending in the Ministry at the time Decree
No. 10 of 1950 took effect are subject to the terms of that decree and the objector
or person giving notice has a period of three months to adjust his claim to those
terms.

Article 37 requires the keeping of a register of all notifications duly accepted
under article 35 containing the following information:

1) Number and date of entry;

2) Name, nationality and residence of applicant;

3) Department, Intendencia or Comisaria and municipality in which the oil
land is located, and its name;

Article 5 defines privately owned petroleum as that found in lands legally re-
moved from the public domain prior to October 28, 1873, and not recovered bynul-
lification, expiration or other legal cause. Petroleum in lands legally awarded for
mining while article 112 of law No. 101 of 1912 (the Fiscal Code) was in effect is
also regarded as private property if appropriate title thereto is presented.

Article 38 requires that a copy of all notarial instruments relating to rights
or obligations in oil lands or to other business connected with the petroleum indus-
try, be sent to the Ministry of Mines.

Article 6 relieves the Government of any liability for compensation or indem-
nity to the signer of a contract, if a third party subsequently proves legal right to
the petroleum in question.

4. Royalties

Under article 39 every concessionaire of Government-owned petroleum must
pay the Government, at the port of shipment, a royalty in either the crude product
or money, at the option of the Government, based upon the length of pipe lines, ac-
cording to the following scale:

Distances are computed by the length of the pipeline from center of production
of the enterprise to the port of shipment.

The Government may also require payment of royalty at the place of produc-
tion. In this case the percentage is collected as above, plus an amount equivalent
to the cost of transportation from the center to port of shipment, according to cur-
rent charges on the pipeline. This additional amount of petroleum is computed by
dividing the cost of transportation by the price of one barrel of crude petroleum at
the field, as established by the provisions of article 42.

84 If royalty is collected in crude petroleum itis paid at the close of each quarter.

PETROLEUM

If there is no pipeline, the basis of calculation is the distance to the nearest
port to which the construction of a pipeline would be regarded as feasible. The rates
prevailing at the nearest pipeline are applied to this imaginary line. Disputes are
settled in accordance with article 11.

Royalties may be collected partly in kind and partly in money at the port of
shipment, or partly in kind at the center of production and partly in money at the
port of shipment. The Government may divide the part taken in kind as it sees
fit.

In the case of petroleum from submarine deposits, the 11 percent designated
in the above table is reduced to 10 percent.

The Government must notify a concessionaire at least six months in advance
as to the form in which royalty is to be paid.

For the purposes of this law, a port of shipment is defined as any maritime
or river port reached by seagoing tankers.

Concessions utilizing natural gases for conversion into "natural gasoline"
must, under article 40, pay the Government one-thirtieth part of gross production
or its equivalent in money at the prevailing price per gallon. Such payment need
not be made if the product is mixed with crude petroleum and not sold or utilized in
separate form.

If natural gas is sold or used for industrial purposes, the Government shall
receive 5 centavos per 10,000 cubic feet.

In every contract the Government must specify the methods to be used to pre-
vent waste of natural gas. It may regulate the manner of measuring the gas for pur-
poses of payments required.

If the amount of gas so justifies, as determined by both parties, a plant for
extraction of the gas should be built.

Before computing the royalty due, according to article 41 all crude petroleum
and gas consumed in the operations of a concession is deducted from the total.

Under article 42 if the royalty is demanded in money, it is to be paid monthly
at the average price of crude petroleum for the preceding months at the port of ship-
ment. If there is no market price for crude petroleum at such port, the basis shall
be the average price at a market agreed upon in the contract, less normal costs of
transportation between such points.

A tax, in lieu of royalty, is imposed on petroleum obtained from privately
owned property under article 46, according to the following schedule based on dis-
tance from port of shipment, and in effect for 15 years

The tax on natural gas and natural gasoline is set at 40 percent of the amount
of royalty fixed by article 40.

These taxes are collected in money in the manner provided in articles 38 to
43 in regard to royalties. But an operator is obligated to sell to the Government
upon demand, within thirty days following monthly payment of the tax, a quantity of
petroleum up to double the amount which would correspond to the tax for the month
immediately preceding, this petroleum to be delivered at the port of shipment at
the same price.

5. Transportation

Articles 45 to 57 deal with the subject of transportation of petroleum. Under
article 46, any person who exploits petroleum is entitled to construct and utilize one
or more pipelines for his operations.

Several concessionaires who do not individually have sufficient production to
maintain a pipeline to the port of shipment, as satisfactorily demonstrated to the
Government, may join together to construct a common pipeline.

Companies which are not petroleum producers may also construct pipelines,
under contract with the Government according to provisions of law, and the Govern-
ment itself may construct pipelines.

The routing of every pipeline, which shall follow whatever route is found to be
technically most practicable, and the location of its terminal at the portof shipment,
are subject to approval by the Government. Approval may be refused only for tech-
nical reasons.

All pipelines constructed in the country by non-producing companies are tobe
regarded as public transportation enterprises. The Government shall have priority
in the transport of its petroleum. In pipelines for private use, such priority is lim-
ited to petroleum comprising royalty or tax payments of concessions served by
the pipeline in question. In all cases the Government must pay regular rates of
transportation in effect at the time. Priority is limited to 20 percent of daily ca-
pacity.

86

PETROLEUM

Rates are fixed by agreement between the Government and concession holders,
taking into account:

1) Amortization of capital invested in construction;

2) Expenses of maintenance and operation;

3) A fair profit for the enterprise determined onthe basis of similar profits
in other countries, particularly the United States, and the degree of de-
velopment in the oil fields served.

No pipeline may operate without approval of its schedule or rates by the Gov-
ernment.

These provisions apply to other means of transportation of petroleum and its
derivatives.

All pipeline contracts shall be valid up to thirty years from the date beginning
operations, at the expiration of which the pipelines shall be sold to the Government.
This is also effective if a contract terminates for any reason.

Pipelines utilized by privately owned petroleum enterprises, and notfor public
use, are not subject to the above provisions.

Rate schedules may be revised by agreement every four years.

A transportation tax is imposed on pipelines in public use, amounting to 2 1/2
percent of the value obtained by multiplying the number of barrels transported by the
rate collected. If the pipeline was constructed after October 7, 1952, the tax is 6
percent in the Western Zone and 2 percent in the Eastern Zone, in accordance with
article 17 of Decree No. 2140 of 1955.

6. Refineries

Articles 58 to 61 cover the subject of refineries. The refining of crude petro-
leum may be freely undertaken anywhere in Colombia. The Government may grant
permits for not over thirty years for the establishment of refineries or fuel supply
stations on lands within the national reserve. Payments and other conditions are
determined in individual contracts.

The Government may construct and operate refineries or contract therefore to
process the crude petroleum it receives as royalty, tax, or under any other title.

Under article 59, as clarified by article 20 of Decree No. 2140, crudepetro-
leum produced from operations established under Law No. 37 of 1931, if refined within
the country for domestic consumption, and by the operator in refineries which he
himself owns, is exempt from the payment of royalty or taxes. If produced and re-
fined within the country for export, such petroleum shall be exempt from one-fifth
of the royalty or taxes for a period of ten years.

87

COLOMBIA

Machinery, materials, and equipment imported for the installation of refineries
or the production of refined products are exempt from import duties.

7. Miscellaneous Provisions

Article 67 provides that the Government may impose fines up to 5,000 pesos
for failure to comply with obligations established in the law or in subsequentdecrees,
when non-compliance does not result in termination of contract or cancellation of
permits or if the Government prefers to invoke such penalties in lieu of termination
as provided in article 68.

That article lists the following reasons for terminationof contractor cancella-
tion of permit:

1) If royalties or taxes are not paid when due or if the Government is refused
priority in transporting its petroleum;

2) If exploitation or transportation is not commenced within the periods
fixed by contract or if suspended thereafter for over 120 days in year
without consent of the Government;

3) If when one oilfield is held by several concessionaires and disputes
arise, they refuse to undertake a cooperative plan of exploitation as
provided in article 23;

4) If arbitration by experts is refused, as provided in article 9;

5) If an office or branch is not maintained in Bogot as provided in article 8;

6) In case of legally declared bankruptcy of the concessionaire;

7) If the contract is transferred to a foreign Government;

8) If the annual investment required by article 27 is not made.

Ninety days grace shall be allowed for correction or rectification of defects.

Article 75 established a Petroleum Advisory Board (Junta Asesora de Petr6-
leos) consisting of 3 members chosen for three years. The Minister of Mines and
Petroleum presides over the Board.

Articles 82 to 231 constitute the regulations of the preceding provisions.

Article 146 contains detailed technical requirements to be presented when re-
questing extension of the period of exploration.

Article 160 establishes definite minimum amounts that must be invested in a
concession. It states that during each five-year period of the first decade of acon-
88 tract a minimum of 40 pesos per. hectare must be invested, but with a minimum of
500,000 pesos even though the surface area may be less than 12,500 hectares.

PETROLEUM

In concessions listed under section 2 of article 17 (the eastern regions) this is
reduced to 20 pesos per hectare, but not less than 1,000, 000 pesos in all, even if
the area is less than 50,000 hectares.

The amount invested may be distributed in any way over the five-year period
but the quota for one year must notbe less than one tenth of the total.

Expenditures during exploration may not be counted in these requirements for
exploitation, and likewise excess investment in one five-year period may not be
counted in the minimum for the next period.

During the second decade of the contract the figures cited are reduced by half
and during the third decade to one fourth, under the same conditions.

After the first five years of exploitation the minimum may be decreased by
consent of the Government, if justifiable reasons are presented.

Article 161specifies details in regard to marking of boundaries.

Article 164 indicates specific scales to be used in maps, depending on size of
the concession.

Renouncement and termination of contracts are discussed in detail in articles
166 to 188.

Article 189 to 209 contain detailed provisions concerning pipelines.

Article 210 provides that petroleum refining may be undertaken freely through-
out the national territory.

The Labor Code (1950) establishes certain requirements for petroleum conces-
sions in regard to social welfare of workers such as proper food,medical attention,
preventive measures against certain diseases, hospitals, etc.

Law No. 13 of 1922, governs inspectors for the petroleum industry (interven-
tor visitador and inspector resident) and their qualifications and duties.

8. Taxation

The petroleum industry is subject to the usual taxes imposed on all persons
according to pertinent provisions. The most important of these is the income tax,
including the normal tax, the excess profits tax (on any profits above 12 percent)
and the patrimony or property tax, which is supplementary and additional to the in-
come tax. However, Decree No. 2140 of 1955 established certain special provisions
benefiting the Eastern Zone and the Western Zone.

With respect to the Eastern Zone, which includes all territory south and east
of the Cordillera Oriental, the duration of a concession was increased to fiftyyears
plus the possibility of extension for an additional twenty-year period. Likewise,the
initiation of exploitation maybe postponed by the Government at the concession
holder's request, for technical or economic reasons.

COLOMBIA

The depletion and amortization allowance was raised to 28 percent of gross
income but not to exceed 50 percent of the net income, in accordance with article 13.

Unsuccessful investments may be deducted in full from the gross income for
the year in which an area is definitely abandoned or it may be capitalized, at the
option of the interested party.

Royalties are fixed at 3 percent regardless of distance from the Coast. The
property, income, and excess profits taxes shall not exceed 40 percent of the net
income before deducting royalties payable. Surface rentals are suspended during
drilling operations (article 12). The pipeline transportation tax is reduced from 4
percent to 2 percent (article 17).

Benefits granted to the Western Zone were less extensive. A "normal deple-
tion" allowance of 10 percent of gross income, but not to exceed 35 percent of net
income, is established although this is limited to the amount invested in the producing
concession (article 4).

If a concession holder invests over two million pesos per year in the explora-
tion of any region outside the producing concession, 15 percent of gross is allowed
as a depletion allowance in addition to the 10 percent mentioned above and the limi-
tation to the amount invested is lifted. This amounts to a 25 percent depletion al-
lowance not limited to the amount of the investment. The foregoing two items may
not exceed 50 percent of the net income.

Unsuccessful investments may be amortized at the rate of 10percentperyear
if such investments were made subsequent to August 3, 1955, provided the two mil-
lion pesos investment is being made. This allowance is in addition to the 25 percent
depletion allowance and is not subject to the limitation of 50 percent of net income
(article 6).

Other unamortized investments outside the producing concession may be de-
ducted at 10 percent per year if exploration investments of less than two million
pesos are being made, otherwise at 5 percent (article 7).

If investments in excess of two million pesos are made in any one year but
not in subsequent years, the excess may be distributed over the subsequent years
at the rate of two million pesos a year in order to obtain the advantages mentioned
(article 9).

The patrimony (property), income, and excess profits- taxes shall not exceed
50 percent of net income before deducting royalties, but will be at least 40 percent
(article 10).

Patrimony is to be reduced annually by the depletion and amortization al-
lowances accepted until total investment is offset in full by the reserves (article 18).
Taxable patrimony is constituted by the investment in the producing concession or
concessions. At the company's option, it may be increased by the amounts invested
in other concessions or properties in the exploration period (article 19).

ECUADOR

MINING LEGISLATION

1. Basic Legislation

The basic legal provisions governing mining activities in Ecuador are the Gen-
eral Mining Law of February 5, 1937, with amendments; the Petroleum Law of Au-
gust 6, 1937, with amendments; and the Law on Gold Washings (Ley de Lavaderos
Auriferos) of February 5, 1937.

2. Ownership of Mines

In accordance with the General Mining Law of February 5, 1937, and its
amendments, mines of all minerals and fossil substances found within the earth are
exclusively the property of the Nation and regardless of the private ownership of
the surface above them, ownership thereof is inalienable and unalterable.

The State may grant the usufruct from mines by concessions to individuals and
to civil or commercial companies, under the conditions and for areas established by
the General Mining Law, the Law on Gold Washings, and the Petroleum Law.

The usufruct from a mine is granted by the State for a period of not to exceed
thirty years, if by contract, except in the case of deposits of hydrocarbons, for
which under article 5 of the Petroleum Law, the period is forty years. If obtained
by denuncio, or denouncement, rather than by contract, for lode mines and petro-
leum deposits, the period is twenty years, and in the case of alluvial deposits or
washings the period is fifteen years, as provided in articles 18 and 19 of the Gen-
eral Mining Law.

3. Area, Division and Measurement of Mines

These subjects are governed by the provisions of articles 12 et seq. of the
General Mining Law; articles 13 et seq. of the Law on Gold Washings, and articles
7 et seq. of the Petroleum Law.

For legal purposes, mines are classified into three groups:

1) Mines in veins, lodes, strata or impregnated deposits;

2) Alluvial deposits or washings, usually formed in river beds or from min-
erals washed down by the action of rivers;

3) Deposits of hydrocarbons.
91

ECUADOR

The unit of area which the law grants for exploitation of a mine is termed a
pertenencia or claim and is of indefinite depth within specific limits as to length
and width.

The area of a claim for mines in the first category above is that of a rectan-
gle 200 by 500 meters, equal to ten hectares.

For mines in the second category a claim has an area of 25,000 square me-
ters, measured in any form specified by the claimant, along the length of the river
bed, in accordance with article 17 of the Law on Gold Washings.

For the third group, deposits of hydrocarbons, a claim or fundo petrol'fero,
as it is termed in the Petroleum Law, shall have an area of four hectares, accord-
ing to article 8 of that law.

For the first category of mines, the person entitled to usufruct thereof may
denounce up to twenty claims. In the case of mines granted by contract the area
shall be stipulated by mutual agreement between the Ecuadorian Government and the
interested party.

In the case of alluvial deposits or washings, a concession may not be granted
for an area greater than 200 kilometers along the length of a river.

For the third group, hydrocarbons, the maximum concession permissible by
denouncement shall be the equivalent of twenty claims fundsos, or eighty hectares
per person. In accordance with probable advantages to the country and after due
studies have been made, the Ecuadorian Government may grant by contract a maxi-
mum of 50,000 hectares, the minimum being 400 hectares. If it becomes necessary
to raise this maximum the Executive is authorized to do so, after consulting the At-
torney General of the country.

4. Denouncement of Mines

Any person or legally constituted entity having the legal capacity to acquire
property may apply for the right of usufruct in a mine owned by the State, in accord-
ance with article 27 of the General Mining Law, but the following are excluded:

1) The President of the Republic, Ministers of State, the Governor of the
Province in which the mine is located, the administrative and technical personnel of
the Mining and Petroleum Administration (Direccion General de Minerfa y Petroleo).

2) Mine engineer-inspectors, employed by the Government in the district in
which the mine is located.

Concessions for exploration. In accordance with articles 32 et seq., of the
General Mining Law, application may be made for a permit for prospecting or ex-
ploring mining zones covering an area up to twenty claims (pertenencias) as defined
above for each of the three classes or groups.

A concession for exploration shall have a minimum duration of 180 days, but
may be extended for an additional 90 days if documentary evidence is presented to
show cause why the work was not executed.

If granted under a contract, the maximum period shall be determined in the
individual instrument, but may in no case exceed four years.

The beneficiaries of a concession for prospecting or exploration are entitled
to the exclusive right of applying for a concession of exploitation or denouncement
of claims to replace the prospecting or exploration concession wholly or in part,
provided the new application is made while the former concession is in force.

Parties interested in a concession for exploration must deposit a guarantee of
200 to 1,000 sucres, as determined by the authorities in charge, in accordance with
the area for which application is made; this amount will be reimbursed if work is
completed during the period mentioned.

Mining companies already established or to be established in the country may
possess more than one exploration or exploitation concession at the same time pro-
viding they comply with all legal provisions.

Any person or entity, national or foreign, who observes the provisions of the
General Mining Law, may make contracts with the Government for mining conces-
sions, in accordance with article 70 of the General Mining Law.

The formation of a mining company, transfers, termination, etc., of mines
must be recorded with the Ministerio-Juzgado de Minas (the chief authority over
mines), to have legal effect, in accordance with article 178 of the General Mining
Law.

The law contains certain restrictions on the granting of permits for explora-
tion concessions:

1) No concession may be granted within the area of a town, if any immediate
or remote danger is involved;

2) No concession may be granted within farmyards, gardens, orchards or
cultivated fields, except to the surface owner;

3) Mines may not be prospected or exploited in other fenced or permanently
cultivated lands without advance notice to the owners of the land and agree-
ment to pay any resulting damage; otherwise, the owner may preventwork
for discovery, prospecting and exploration of the mine;